Fair Credit Reporting and Why It Matters

Your credit score and financial history are important for a variety of reasons. Whether you are looking to buy a home, a new car, or even get health insurance for yourself, your credit history is taken into consideration by lenders to assess your credit worthiness [1].


You have probably heard the saying that money attracts more money. A fair credit score makes you an attractive borrower and lenders are more willing to offer you credit. The more credit you get and repay on time, the better your credit score becomes. 

The range of credit scores show on a gau

A good credit score will help you get better deals and more opportunities [2]. When your credit score is high enough, you are considered a low risk prospect. Lenders will offer you loans at a lower interest rate, reducing your cost of credit.

Fair Credit Reporting Act

The FCRA was passed in 1970. It helps consumers understand what actions they can take regarding the information in their credit reports [3]. Here's an overview of the key aspects of the law.

  • The FCRA allows you to find out if the information in your credit file is used against you to deny loans or credit applications.
     

  • The FCRA allows you access to all the information that a reporting agency has about you. You can get one file disclosure for free every 12 months from each national credit bureau

  • The Act also restricts other people’s access to your credit report. Exceptions to this rule include "permissible people" such as landlords, creditors and insurance companies etc.

  • If you find out that the information on your report is inaccurate or incomplete, you have the right to dispute it with the reporting agency.

  • The FCRA allows you to opt out of pre-screened offers of credit that you may receive.

  • The Act also allows you to freeze your credit report, so that potential lenders cannot check it without permission.

What is a Fair Credit Score Exactly?

Before we talk about fair credit scores, let's understand how the credit rating scales work. There are two main ways that credit rating agencies rank credit score; FICO and VantageScore [4]. Both scales run from a range of 300 to 850 [4]. Lower scores are considered poorer, while higher scores are considered excellent.

Fair credit is a slightly subjective term here. Every lender and financial institute may have its own definition of what is considered a fair or good credit score. For most credit advancing firms, fair credit starts at somewhere around 630, but you may find lenders that consider a score of 600 a fair score.

As evident from the chart above a fair score on FICO is still poor on the VantageScore rating chart. While the word fair may give you an indication that the score is adequate, the truth is that a fair score is often considered below average.

FICO-vs-VantageScore Ranges.png

Fair credit is a slightly subjective term here. Every lender and financial institute may have its own definition of what is considered a fair or good credit score. For most credit advancing firms, fair credit starts at somewhere around 630, but you may find lenders that consider a score of 600 a fair score.

As evident from the chart above a fair score on FICO is still poor on the VantageScore rating chart. While the word fair may give you an indication that the score is adequate, the truth is that a fair score is often considered below average.

Lenders will generally require you to have at least a fair credit score before they consider your loan applications. Some lenders ask for a good score to approve loans [5]. A score of 680 or above is considered good enough to get you approved for most types of credit.

Why Is It Important to Know Your Credit Score?

It is important to be aware of your credit score so you can take action to improve it from poor to fair or from fair to good.


When you monitor your credit score regularly, you will be able to determine what is causing the score to drop and get errors corrected that may be hurting your credit score.

 

Common Errors on Credit Reports

Although credit reporting agencies try to be as accurate as they can, it is possible that they make an error on your report, which messes up your score [6]. Some common errors in credit reports include the following: 

Identity Errors

Although credit reporting agencies try to be as accurate as they can, it is possible that they make an error on your report, which messes up your score [6]. Some common errors in credit reports include the following: 

  • Accounts from another person with the same or a similar name as yours get mixed up with yours. This is called a mixed file error.

  • An error may be made to your identity information (name, address, contact number, etc.) which triggers a red flag.

  • Incorrect credit history resulting from identity theft.

Incorrect Reporting Of Account Status

  • An account may be incorrectly reported as late or delinquent even though you’ve cleared the payment on time.

  • Closed accounts may be reported as open.

  • Incorrect date of credit account opening, last payment or first delinquency.

  • The same debt may be listed multiple times through duplication or under different names.

  • You are reported as the borrower of an account in delinquency when you are actually just an authorized user.

Data Management Errors

  • Accounts that appear multiple times with different creditors listed even though they are a single account.

  • Reinsertion of incorrect information after it was corrected.

Balance Errors

  • Account information with an incorrect credit limit.

  • Account may have an incorrect current balance.

Credit Report Dispute Process

Millions of Americans have errors on their credit reports and your credit report could have material errors too. This means it’s important to understand the process for dispute and resolution of incorrect items on your credit report. This process [7] involves the following:

Identify Credit Report Errors

Make sure that you periodically review your credit reports for inaccurate or incomplete information. Remember, users get one free credit report review from each of the three major credit bureaus — Equifax, Experian, and TransUnion — once per year. Just go to www.annualcreditreport.com.


You can also subscribe, usually at a cost, to a credit monitoring service to review your reports more often.

Contact the Vendor/Bank

 

If you do detect an error in the reports, your next step should be to contact the person who provided incorrect information to the reporting agency. This could be your bank or a utility company.


Verify their records to confirm if there has been an error.  If your bank made an error, you can get the issues resolved at this stage. If the bank’s records are correct and the agency made the mistake, you will need to contact the reporting bureau directly.

Dispute Your Credit Report’s Errors

Under the FCRA, both the company reporting the error and the credit reporting bureau are required to accept and consider disputes from consumers. They will initiate a record review process and correct any inaccurate or incomplete information about you in their records. It is always smart to mail a courtesy copy of your dispute to the creditor as well. Make sure to send all disputes via certified mail.

Allow Time for an Investigation

The credit reporting bureaus will get in touch with the vendor or bank to investigate the items disputed in your report. They will send relevant information to the vendor or bank and ask for correction. The provider will then investigate the issue and report back to the credit agency with correction.


The process usually takes 2 to 4 weeks, but it mostly gets done within a month.  You should wait until you receive the written “investigation results report” from the credit reporting agency. If you do not receive this within 30 days, you should mail a follow-up letter to the credit reporting agency, with a copy to the creditor.
 

Conclusion

The FCRA ensures that consumers can review and monitor their credit reports and get any errors corrected when required. It is easy to find your credit report, check it for errors, and raise a dispute when there are errors in the report. 


It is important to review and keep your credit report accurate to qualify for credit at good terms. Generally, lenders can set their own criteria for approving credit applications. However, if you know where you stand on the credit score range, you can make informed guesses about your loan eligibility and financial situation. This can save you both disappointment and headache from loan rejection.


A good credit score, coupled with knowledge about your score, will allow you to predict better whether your application will be approved or denied. You will also be able to tell whether you qualify for lower interest rates or other favorable terms like a 0% deposit.

References

  1. https://wallethub.com/edu/cs/what-is-a-fair-credit-score/39025/

  2. https://www.experian.com/blogs/ask-experian/what-is-a-fair-credit-score/

  3. https://www.experian.com/blogs/ask-experian/credit-education/score-basics/what-is-a-good-credit-score/

  4. https://www.creditkarma.com/advice/i/credit-score-ranges/

  5. https://www.nerdwallet.com/blog/finance/credit-score-ranges-and-how-to-improve/

  6. https://www.consumerfinance.gov/

  7. https://www.lifelock.com/

Torrens Law Group, P.A.
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