General Credit Guide

Should I check my own credit?

Absolutely. In the great majority of cases, banks, credit unions and other finance companies rely on trusted third party intermediaries to assess the applicant's credit worthiness. Therefore, while it'd be best to monitor your credit on an ongoing basis, you should check your credit at least 90 days before you plan on applying for a car loan. That way, you have time to correct any incorrect or outdated information that may be bringing down your score. You may also be able to add commentary give a reasonable explanation that lenders should know. Finally, if you have a co-borrower or a spouse, it's best for them to also check their credit.

Where can I get my credit report?

There are three national credit reporting agencies: Equifax, Experian and Trans Union. The 2003 Fair and Accurate Credit Transactions Act may entitle you to a free report from each of these three agencies each year, but even if that's not possible, these agencies typically charge about $10 per report. If you are denied credit based on an agency's credit report, you may be entitled to receive a free report from that agency.

What should I look for?

The FICO score (Fair Isaac Corp. score) is the best place to start. It compares your credit information and history to that of thousands of other customers and then assigns a FICO score ranging between 300 and 900. The higher your score, the lower risk you will be considered, resulting in a lower interest rate on the money you borrow. This also means that the lower your score, the higher risk you represent (i.e., greater risk of default) and therefore, the higher interest rate you will be charged.

The average FICO score for consumers shopping a new car lot may be 680 or above. The best financing rates typically are for applicants in the 700+ FICO range. The average score for shoppers on a used car lot may be 580. Some dealers and lenders willingly lend to applicants in the 500 FICO score range. They will typically include their estimated costs for a certain number of late payments, defaults and repossessions.

How did I get this credit score?

A number of factors affect a credit score:

• How long you've had credit
• Your level of outstanding debt
• How much new credit you've sought recently
• The types of credit you hold and, potentially, the term, payment structure, etc.
• Your history of credit payments
• Length of time at permanent residence
• Employment history
• Late payments
• Bankruptcies, charge-offs, collections and other negative information

If I find a mistake, how do I correct it?

Negative reports may remain on your credit record for up to seven years and bankruptcies up to 10 years, so it's important to review your report carefully:

• Are there any accounts that don't belong to you?
• Are there any outstanding items such as disputes, late payments or delinquencies that you don't recognize?
• Are they accounts that you have closed but show that they are open?
• Are the balances or credit limits on accounts you recognize that are incorrect? Keep in mind that the outstanding balance changes based on accrued charges and received payments.

The company that reports your information to the credit bureau has the responsibility of backing up the data they provide. If you see something that doesn't make sense, write the company reporting it as well as the credit bureau. They both have responsibilities to correct inaccurate or incomplete information. In both cases, include copies of documents which support your position, and send your letter by certified mail return receipt requested, so you have proof that they received it. It is your right under the Fair Credit Reporting Act (FCRA) to have inaccuracies corrected. Should the company decide after review of your additional information that they are not required to update the credit bureau, in addition to any legal remedies my you may choose to pursue, you can include a statement that will be included on subsequent reports explaining your position on the item(s) in question.

To contact the mistaken credit bureau, send a letter to:

Equifax Information Services
P.O. Box 740241
Atlanta, GA 30374-0241
800-685-1111

Experian's National Consumer Assistance Center
P.O. Box 2002
Allen, TX 75013
888-397-3742

Trans Union Corporation
P.O. Box 2000
Chester, PA 19022
800-961-8800

The letter should include your full name, current mailing address and previous addresses for the last five years, your Social Security number, your date of birth, your spouse's name and Social Security number (if applicable), the name and account number of the creditor and item you're disputing, and your explanation of the error. The credit bureau must then reinvestigate the items in question -- usually within 30 days -- unless they consider your dispute frivolous. When their reinvestigation is complete, the credit bureau must give you the written results and a free copy of your report if the dispute results in a change. If an item is changed or removed, the credit bureau cannot put the disputed information back in your file unless the information provider verifies its accuracy and completeness, and the credit bureau gives you a written notice that includes the name, address, and phone number of the provider.

In addition to the company that reports your information, the Fair Credit Reporting Act gives you the right to challenge the reports from credit bureaus, and have them corrected if they're wrong. Address your requests to the credit bureau directly. Finally, if the credit bureau decides not to change information it is reporting, you can go to the Federal Trade Commission's Web site (www.FTC.gov) and read more about how to progress a claim under the Fair Credit Reporting Act.

Can I improve my credit score?

It is possible to improve your credit score over time. Here are a couple of suggestions on how to improve it:

• Pay down any credit cards. Being maxed out or having a majority of the credit used will worsen your credit score
• Pay bills on time
• Close accounts that you don't use. The FICO score considers both the amount of credit you've used and the amount you have available in total
• Do not apply for credit frequently. Although a few inquiries do not hurt your score significantly, many inquiries do
• On the other hand, obtain more credit if you have very little. If you do not have sufficient credit, this can negatively impact your score
• It's important to establish a payment history, but it takes time. Without much payment history, FICO makes assumptions that are often negative. Take out credit as required for purchases and make sure to pay it off regularly. Over time, FICO will see this pattern, resulting in a higher score

There is no way to increase your score quickly, and the best way is to establish responsible credit practices over time.

What is the Fair Credit Reporting Act (FCRA)?

Public Law 91-508
Key points of the FCRA are:

• The FCRA allows a consumer to challenge information on his or her credit report to ensure "completeness and accuracy".
• When a credit bureau reviews a dispute, it must "at a minimum... check with the original sources or other reliable sources of the disputed information and inform them of the nature of the consumer's dispute." In some cases of consumer dispute, "Reinvestigation and verification may require more than asking the original source of the disputed information the same question and receiving the same answer".
• Credit bureaus are required to complete the investigation within thirty days. If, within 30 days, the credit bureau has not received verification from the original creditor, the credit bureau must promptly delete the credit listing.
• If the credit bureau finds through investigation that the disputed information is found to be inaccurate or can no longer be verified, the [credit bureau] shall promptly delete such information.
• The credit bureaus do not have to investigate or re-investigate a dispute if they have reason to believe that it is "frivolous or irrelevant", e.g. if the consumer doesn't provide any allegations regarding specific items in the credit report.

Disclosure: We developed the content for SmartCarCredit™ while working with automotive industry clients. We hope you find it helpful in making informed decisions. While we believe the information to be accurate, we do not guarantee its accuracy.