1. The basics of credit reporting

2. Your credit history is built over time
Your credit history is built over time. Even though we tend to view the use of credit as a given in America, using credit is a privilege -- not a right. Once credit is earned, it is up to you to use it wisely and protect it.

3. The Fair Credit Reporting Act
Credit reporting companies are governed by the Fair Credit Reporting Act (FCRA) enacted in 1970, revised effective October 1997, amended December by the Fair and Accurate Credit Transaction Act (FACT Act)
Credit reporting is one of the most highly regulated services in America, with consumer protections that go well beyond the norm.

4. The benefits of credit reporting
Credit reporting companies serve consumers and businesses by making possible:
Instant credit
Lower-cost credit
Nationwide credit
Widespread availability
Account management
If you have been turned down for credit, you most likely know about credit reports. That is because the company which denied your application told you how to get a copy of your credit report if they used it to make their decision. You remember that negative experience.
But what about all of the times your request was approved, the service was provided, you signed for the merchandise and went home happy? Very likely, a credit report helped make it happen. This positive experience occurs millions of times each month.
If you haven’t thought about it, credit reporting:
Reduces Costs
Without automated credit information services, retailers and banks would have to call each creditor listed on an application, increasing the cost of credit.
By utilizing credit reports, companies can avoid losses to bad debt, which keeps costs to all their customers lower.
[Continued]

5. The three national credit reporting companies
Experian
Equifax
Trans Union
There are some independent local or regional credit bureaus that provide direct consumer assistance but whose data resides with one of the national credit reporting companies
Three companies maintain national credit reporting databases -- Experian, Equifax, and Trans Union.
When a subscriber purchases a credit report, they choose one of the three databases. All of the information in the database is provided.
When a consumer requests a disclosure, instructions to receive assistance will be provided on the individual’s report, giving the address and/or phone number of the office to contact for consumer service.

6. Requesting your personal report
Experian
Equifax P.O. Box Atlanta, GA
Trans Union P.O. Box Chester, PA
These are the national consumer assistance addresses for the national credit reporting companies.
Users of credit reports are required to provide in their adverse action notices contact information for the credit reporting company they used to make their decision.

7. Sources of reports for consumers
Consumer reporting companies
Referred by adverse action notices
Fraud
Unemployed and seeking employment
Receiving welfare assistance
Free reports under some state laws
Purchase additional reports
FACT Act Centralized Source
Consumer direct services
The format and presentation of credit reports can be very different from user to user. Creditors often customize the reports for their processing systems, and the data is coded for efficiency. Consumer-friendly language and formats are used for reports provided directly to consumers.
The first five bullets describe situations in which consumers may request a report for no charge.
Experian encourages creditors to also provide an Internet address in their adverse action notices, which will link consumers directly to our online service, offering consumers instant access to their credit reports.
Consumer direct services include Experian’s CreditExpert.com, freecreditreport.com and many partners who offer online credit reports, scores, and credit monitoring services.

8. Centralized source for free reports www.annualcreditreport.com
One every twelve months
Single contact point
Telephone
Mail
Internet
Fee for credit score disclosure
We worked with TransUnion and Equifax and various vendors to create three separate requests methods: Internet, telephone and mail.
The Central Source Web site allows consumers to request their annual free credit reports online from each of the credit reporting companies and provides FAQs to help consumers understand credit reporting
Consumers enter their identification information once and then select which company they want a report from. Then, they are passed to that company’s Web site to answer additional authentication questions and view their credit report. Once finished, they will be returned to the Central Source site with the option to select a second company, and then a third.
The Central Source VRU allows consumers to call and use a speech recognition system to order their reports from one, two or all three credit reporting companies with one phone call, 24 hours a day, seven days a week.
The Central Source Mail Service scans requests for reports and transmits them via batch processing to all three credit reporting companies. There is a standardized form to request the annual free report by mail, but the Central Source accepts requests that are not on the form so long as all of the required identification information is submitted.
We do not promote products on the Central Source site, but consumers receive marketing information about credit tools, such as credit scores, once they come to the Experian site to view their free report.

9. The credit cycle You pay lender Credit reporting companies Lender
share
with new
lenders
Lender
updates
records
The basic credit reporting process begins when you open an account and make payments as agreed -- or perhaps you miss some payments.
Each month creditors update their records and share your account status with the credit reporting companies.
The credit reporting companies then update their records and add the current month to the history of how you have paid that account.
If you don’t want a credit report, then you simply never use credit. Once you have an account, lenders have a right to share your payment history with other lenders and credit reports are the best way for that to happen.
Lender shares history with credit reporting companies

10. Credit reporting companies are like libraries
Credit reporting company clients check out information …
… If they have a permissible purpose under the law
A credit reporting company’s role is comparable to a library. A library doesn’t write the books, it just stores them and checks them out. Similarly, a credit reporting company doesn’t create the account history, it just stores the history reported by creditors and checks it out to potential new creditors in the form of a credit report.
To “check out” a credit report, a company must meet the membership requirements of the credit reporting company and must have a permissible purpose for getting the report.
Experian membership requirements typically include:
Proof of a permissible purpose under federal law;
A current business license; and
A signed contract requiring the business to use the data properly.

11. The Fair Credit Reporting Act Permissible purposes
Open or manage credit accounts
Offers of credit
Employment purposes
Underwrite insurance
A business transaction initiated by the consumer
Court order or federal jury subpoena
Valuation of risk of an investor
Eligibility for government license
Disclosure to consumer
The most common uses of credit reports --by far -- are to offer credit, open new credit accounts and then to manage those accounts.
But, it is important to understand that there are other permissible purposes for which companies need to assess risk and would ask for a credit report. A poor credit history can affect your ability to rent an apartment or get a job, require you to make a deposit for utilities, or it could cause your interest rates and fees for services to be higher.
Credit reports are even used for insurance purposes. Good credit management has proven to predict which consumers will file fewer claims. Studies have proven hat consumers who manage credit well are adverse to risk, are not as stressed as consumers with financial problems, and are less likely to have accidents or other issues that result in insurance claims. Using credit as a tool enables people who are lower risk to pay less for insurance coverage and results in those who are higher risk and who make more claims paying more. The end result is a more fair market place with those who make claims paying more than those who don’t.

12. The players in the credit cycle
You
Credit reporting companies
Lenders
Risk score modelers
The government
The information you provide when you apply for credit and how you choose to use credit are the beginning of the credit cycle.
The most important message here is that you, the consumer, are an integral part of the credit reporting process.
Remember, you only have a credit report if you use credit. No one forces you to use credit or to overuse credit. You are in control.

13. Information comes from you
Credit Application
Jonathan Q. Consumer
10655 Birch St.
Burbank CA 91502
Information you provide in an application for credit, housing, or insurance is reported to credit reporting companies
Much is said in the media about the accuracy of credit reports. The way information is received from many different sources in many different formats does cause some variations to spelling or content of identifying information. While some people define those variations as inaccuracies, the variations actually are an accurate representation of the information reported to Experian. They are a normal occurrence and rarely affect your ability to get credit. If Experian were to omit variations or guess at which were accurate and which were not, we would be exposing the consumer to greater risk of inaccuracy because we would not be providing all of the information reported to us.
But, please remember YOU are the original source of that information. You fill out the application used to create your account. The creditor then reports to the information to the credit bureau.
To do your part, you must write clearly and legibly (someone has to read all the letters and numbers), and you must fill out all the identifying information accurately and consistently. (Don’t be Robert on one account and Bob on another or Elizabeth on one and Betty on another.)
Occasionally, lack of precise identifying information will cause mixed files to occur. But, in the vast majority of cases, the credit reporting systems handle those variations so the financial transaction is completed in seconds.

14. Information comes from you
This example of an application might be slightly extreme, but it is very common for words and numbers on application to be illegible. As a result, lenders enter the information incorrectly in their systems, and then report it to Experian incorrectly, causing the misspellings and variations discussed in the previous slide.

15. What’s in a credit report?
Identifying information
Account information
Public record information
Inquiries
Dispute instructions
Credit reports from all three national credit reporting agencies include information which can be divided into distinct categories.
The first is identifying information, which helps the subscriber find your information and helps credit reporting companies add and update information to your file. Employers are not a precise record of your employment history, but simply another verification of your application information.
The Geo Code is a new indicator of census track location as reported by the census bureau. It was added to help creditors with legal and regulatory requirements such as the Equal Credit Opportunity Act and the Community Reinvestment Act.
Most companies routinely report their account information to all three credit reporting agencies and update it monthly.
For each account, the credit report will show your limit or existing balance, what you owe, and if you have made your payments as agreed.
Public record filings relating to financial obligations are routinely collected from federal, state, county and local courts.
[Continued]

16. It is important to remember that these are updated to show if you paid or satisfied the debt, but they are not deleted.
An inquiry is a record of the fact that a credit report was accessed. It typically shows the name of the inquiring company, the account number, the date of the inquiry, the type of inquiry and, in some cases, the address of the company.

17. An important note about inquiries
There are two different types of inquires:
Inquiries shown to potential creditors
Inquiries shown only to the consumer
When you apply for credit, those inquiries become a part of your credit report and will show to other companies who inquire about you.
If you have several inquiries within the last 2 to 3 months, a company may be concerned that you are about to open several new accounts and have too much debt. In that situation, the inquiries could affect your ability to get credit.
Some inquiries show only to you and will not impact your ability to get credit. Those include your request for your own credit report and inquiries made for preapproved credit offers, for employment purposes, or for account monitoring by your existing creditors. Your credit report will indicate which inquiries will show only to you and which will be provided to lenders when you apply for credit.
There are legal requirements to report the inquiries, and credit bureaus will not typically remove them.

18. How long is information retained?
Open accounts in good standing
Closed accounts in good standing
Late or missed payments
Collection accounts
Civil judgments
Chapter 7 bankruptcy
Chapter 13 bankruptcy
Unpaid tax liens
Paid tax liens
Credit inquiries
Indefinitely
10 years
7 years
2 years
Most negative information, such as late payments, remain seven years from the “original delinquency date,” which is the date the payment was first late. No other dates affect when information is deleted.
There is a misperception that collection accounts are purged based on the date of the last payment. In fact, the original delinquency date of the original account determines when collection accounts will be deleted. Making a payment, or paying the entire amount, will not reset the clock.
The deletion times of all public record items is based on the filing date.
Chapter 13 bankruptcy could remain 10 years by law, but Experian policy is to remove it 7 years from the filing date because it requires at least partial repayment of the debts.
Financial advisors often tell consumers to get their reports and make sure that outdated information is not being reported. They don’t understand that purges are an automated process. Consumers don’t have to contact Experian and request deletions.
Inquiries may remain as long as 25 months.

19. What’s NOT in a credit report?
Credit reporting companies do not store:
Criminal background
Medical information
Buying habits / transaction data
Bank account information
Credit risk scores
You now should better understand what really is in a credit report and understand that a credit report does not report criminal or medical history information, or information about specific items you purchased.

20. Initiating a dispute Must get report directly from Experian
Toll-free number on report gives you access to customer service
Report number identifies you and your record
You and customer service representative will be looking at the same information in the same order
Can dispute online, by telephone or by mail
Dispute must be specific
The most important message for consumers is that the best, fastest and most effective way to begin the dispute process is to first get a current report directly from Experian. Their personal report includes instructions for contacting Experian and ensures our representatives are looking at the same information.
When consumers get reports from other sources, such as mortgage reports, reports from their car dealer, etc., it leads to confusion and frustration. If we are all looking at the same, current information, it becomes a very positive consumer assistance experience.

21. Processing a dispute
Credit reporting company verifies with the source of the information (creditor or court)
Must allow up to 30 days for processing
Source verifies, corrects or updates
Secure electronic mail system is used
Creditors required to report corrections to all databases
Consumer can add statement of dispute if issue is not resolved with source
A consumer is not really disputing the information with the credit reporting company. They are asking us to verify the information we have received about them from their creditors. The creditors are the authors of the books.
We all want the creditor to correct the information in their records, not just fix one credit report. Through the automated dispute system, they are also required to copy all three national systems on any correction. If only the credit reporting company changes it, then it hasn’t been corrected at the source nor at the other systems.
We are required by law to allow the creditor up to 30 days to respond to a dispute, so we must tell consumers to allow 30 days from the date the dispute is received. However, with online disputes and an automated dispute system, the average processing time is much shorter.
If the consumer and the creditor cannot reach agreement about the status of a payment or account, then the credit reporting company will provide both versions --- the account history from the creditor and a statement of dispute from the consumer.

22. Beware of credit repair companies
Can’t legally do anything you can do for free
Can’t legally collect fee before delivering the promised service
Can’t legally advise you to lie about your accounts or about your identifying information
A very strong law was enacted in 1996 which would in effect put credit repair companies out of business because it makes all of their “tactics” for removing accurate data illegal. Unfortunately, it is very difficult to find the principals of these companies and prosecute them. So, be sure that consumers understand that anything a credit repair firm can do, a consumer can do for themselves for free.

23. Common myths about credit reporting
When paid, the bad debt will go away
The credit reporting company denied me credit
I’m not responsible for those charges on our account
A divorce decree separates joint accounts
Consumers must give their permission for a report to be issued (employment is the exception)
Requesting your own report and preapproved offers harm your credit history
There is only one credit risk score and it is on every report
Adverse action letters are now required to tell consumers that the credit reporting company did not make the decision.
College students are often hit for joint accounts such as phone bills. A roommate moves out and doesn’t pay and the other is stuck with the bill. If your name is on a joint account, it is your debt no matter who got the goods.
A credit report is a history. Consumers pay a debt and then demand that we remove it.
A divorce decree represents an agreement between the separating spouses. It does not alter your obligations with creditors. You must close joint accounts or remove your name, if possible, from the account by contacting the creditor. The creditor must agree to change the contract in order to remove your responsibility from the account. This typically requires refinancing a mortgage, which requires the new owner to qualify on their individual income.
Written permission is required only for reports requested for employment purposes.
More about risk scores follows . . .

24. Automated credit risk scoring
Used instead of a manual “score sheet”
Valuable risk management tool
Many different models available from many different sources
Credit reporting companies often apply the model selected by the creditor when delivering the credit report; however, the credit scoring model, or formula, is proprietary to the developer and is not known by the credit reporting company
Risk scores are just an automated way of analyzing a report instead of conducting an individual, manual review. Automated risk scoring still considers late payments, outstanding debt, credit experience, inquiries, and other information from your credit history, but in a much more sophisticated, accurate, inexpensive, and unbiased way.
Different models are used by different companies; the same models and scores result in different decisions in different companies; the score can change daily as information in the credit report changes and is not a part of the credit report. The key is to avoid focusing on the score. Instead, look to the main factors which influenced the score to cause a declination. The creditor must always provide these reasons when they decline an applicant.

25. Risk factors are the key
Generated when a risk score is calculated
Tell the consumer what to address in their credit history to become more creditworthy
Are largely consistent from model to model
Are usually included in or described in an adverse action notice
Experian provides both positive and negative factors to consumers with scores it provides through its direct-to-consumer services
The most significant factor for having a good risk score is making all payments on time. Just one missed payment is bad and will impact credit scores negatively. The more recent the missed payment and the more serious the delinquency (30, 60, 90 days late, etc.) the more serious the impact will be on credit scores.
Utilization also is an important factor. Utilization is the total amount you owe on your revolving accounts (typically credit cards) compared to your total credit limits. Being “charged to the max” is a definite sign of risk, so beware of closing unused accounts because it reduces your total available credit limit and makes your utilization appear to be greater. Utilization is also referred to as the balance to limit ratio: total balance /total available limit.
Utilization under 50% is okay. Maintaining utilization under 35% is much better.
Recent inquiries can be a minor factor in credit scores. They indicate new accounts and additional debt may be coming, but has not yet been reported and so do not appear on the credit report.

26. Mortgage and auto loan inquiries
Credit scoring systems recognize multiple inquiries may be made for a single mortgage or auto loan and adjust for that type activity
For example, in many models inquiries for those purposes are counted as a single inquiry within any rolling 14-day period, minimizing or eliminating any impact on credit scores
In recent years as we have become a national marketplace and many consumers have access to internet services, it has become much more common for consumers to shop around for the best rate for auto loans and mortgages. Therefore, scoring models have been updated to deal with this practice.

27. There is no silver bullet
You can’t “fix” the number
Address the risk factors in your credit management and every risk score will improve
Time is the key
Remember, a score is only a reflection of the credit report.

28. Resources www.lifesmarts.org www.jumpstart.org Education partners 29
Free annual FACT Act credit report
Access to free report from each of the three credit reporting companies
Experian
credit education
Ask Max advice column, sample consumer report, frequently asked questions
Experian Credit Educator:
Personalized review and guidance about your credit report and score by an Experian professional for a nominal fee.
Access to credit monitoring and unlimited Experian credit reports and scores
Purchase a scored report and learn about scores
Free online service for consumers to compare low rates on monthly bills and reduce the cost of living
Free online comparison shopping service to help consumers find lowest prices for goods and services
Assistance in locating college education resources
Vehicle history reports to help consumers ensure they make good pre- owned auto purchasing decisions
Education partners
Check out our advice column on our Experian web site, as well as a wealth of information about credit reports.
We also offer a free report and score at freecreditreport.com to consumers when they sign up for our monitoring services. It serves as an opportunity for Experian to further educate consumers and provide a service that keeps them fully informed about activity on their credit reports.
LifeSmarts is a national consumer knowledge competition for high school-aged students, conducted under the auspices of the National Consumers League. Experian is a strong supporter.
The JumpStart Coalition for Personal Financial Literacy works with state boards of education to require financial literacy be included in school curriculums. JumpStart has compiled an extensive bibliography of financial education resources for teachers, and monitors progress of financial knowledge through bi-annual testing of high school seniors.
The final important resource is YOU! Please share your knowledge with your customers/relatives and friends --- You tell 10 people and maybe they will tell 10 people, and so on, and so on.
Most importantly, don’t forget to teach your children about credit and financial management. It will be one of their most critical life skills. 29

29. © 2011 Experian Information Solutions, Inc. All rights reserved.