MILWAUKEE–The credit and debit card information stolen from mega-retailer Target and others this past holiday season sounded an alarm to millions of consumers.
But a lesser-known credit problem should put all consumers on alert.
CBS 58′s Diane Moca has the bottom line on how your credit can tank even if you did nothing wrong.
CBS 58 Contacted Professional Placement Services to find out how. Professional Placement Services is Wisconsin’s most reputable collections agency, with over 100 Wisconsin clients Professional Placement Services has over 15 years of experience serving the community. CBS 58′s Diane Moca interviewed the Founder of Professional Placement Services Craig Johnson to find out how creditors can affect consumers credit reports.
The Better Business Bureau (BBB) says four out of five of people in the state are failing to keep track of one simple number that could be costing them big bucks.
“Your credit score is important to your life and what it costs you to do business,” says Ran Hoth, President/CEO of the Wisconsin BBB.
Hoth is referring to what bankers call a FICO score, the combination of your credit scores generated by Experian, Equifax and TransUnion, or the Big Three credit reporting agencies (CRAs).
That score indicates how well you pay your bills, and is used by creditors like banks to determine if they should lend you money or how much to charge you to do business with them.
Many people know their credit score can affect what they pay for interest on a mortgage or a car loan.
It also influences the price you pay for insurance, rent, cell phones, car rentals and whether or not a bank will allow you to open a checking account.
It can even turn a job offer into a rejection.
Relationship blogger Terry Cato was trying to buy a house when she discovered bad debts and a stranger’s name on her credit report, so she called Experian.
“We talked about delinquent accounts that were not mine,” recalled Cato. “I was quite offended. I do feel like they should’ve done more.”
She says the credit bureau told her it had mistakenly merged someone else’s report with hers.
“She said it happens occasionally but it does not happen very often. But it did happen to me,” added Cato.
A recent study by the Federal Trade Commission (FTC) says 26% of Americans surveyed found at least one error in their credit report (http://www.ftc.gov/sites/default/files/documents/reports/section-319-fair-and-accurate-credit-transactions-act-2003-fifth-interim-federal-trade-commission/130211factareport.pdf). .
Comedian Dan Nainan says he was denied a credit limit increase because his dad’s collections were listed on his Equifax report.
Another recent study (http://wispirgfoundation.org/sites/pirg/files/reports/WIP%20CreditBureaus%20Report%20Web.pdf) by the Wisconsin Public Interest Research Group (WISPIRG), a consumer advocacy foundation, says last year more than 10,000 people in Wisconsin alone complained about credit errors.
The mistakes don’t hurt the credit reporting agencies, which are paid by banks; they hurt the consumers, who will get turned down for a home or pay more in interest for a mortgage, for example, about $60,000 more over 30 years for a $200,000 home loan with a 620 score instead of a 720 score.
A woman in Wisconsin about to buy her first home ran into a snag because her TransUnion credit report declared her deceased.
Credit report mistakes also happen to about 42 million other Americans, according to the FTC study.
Such mistakes can even happen to those of us who are aware of the problem.
Cato said she had contacted credit agencies to prevent unauthorized access to her records before trying to buy a house, so she told the Experian phone agent: “I’ve taken these measures to actually protect my credit. How could this happen?”
One reason is because credit bureaus don’t verify the information; they just report it after gathering it from sources like banks, credit card companies, businesses and collection agencies.
“These companies are making a lot of money; they’re big outfits, and they certainly should be doing more to protect us,” said Certified Financial Planner Tony Drake of Drake & Associates.
In general, neither collection agencies nor credit reporting agencies require proof of a debt unless it’s disputed.
“Pretty much anybody with the right credentials can report anything; they don’t do much to look into it,” noted Drake. “I certainly think that’s very unethical.”
There is nothing requiring collection agencies to get proof of a debt before they begin collection activity.
“Generally upfront you wouldn’t get that information right away,” explained Craig Johnson, owner of Professional Placement Services collection agency. He said he trusts the businesses that report the debt to him.
He says he doesn’t require proof of the debt upfront because he verifies the businesses he works with are reputable and because he gives consumers a chance to dispute it.
“Before we put it on the report, we’re attempting to communicate with them and letting them know what’s out there,” added Johnson.
Johnson says his collection agency calls and sends letters for at least 30 days before a debt hits a credit report.
That’s your first chance to dispute any errors.
But collection agencies may have an old address and old phone number, so many people don’t find out until they’re already applying for a loan or apartment — often too late to clear up errors before it costs them.
Hoth says: “The BBB does get complaints on all three of the credit bureaus.”
The WISPIRG report says Experian, Equifax and TransUnion were responsible for 96 percent of all complaints about credit reporting to the Consumer Financial Protection Bureau (CFPB), a federal group created in 2011 to monitor credit issues.
Two-thirds of all those complaints were about incorrect information on a credit report.
We reached out for comment to all three CRAs and were referred to the Consumer Data Industry Association (CDIA), the bureaus’ trade association.
Norm Magnuson, Vice President of Public Affairs for the CDIA, counters in a statement that: “The FTC found that two percent of consumers had an error in their credit report that would have impacted their creditworthiness.”
WISPIRG says the credit bureaus are required by law to investigate complaints of inaccurate information if consumers provide proof. That could require old bank statements and other documents and a long struggle that could take years.
“There really ought to be a checks and balances system where you have to prove that this debt happened and the person failed to satisfy the debt before you can really affect someone’s life on that level,” added Drake of Drake & Associates. “You are guilty until proven innocent.”
The FTC has a video explaining the process of keeping track of your credit (http://www.consumer.ftc.gov/media/video-0060-your-source-truly-free-credit-report-annualcreditreportcom) and the BBB has a page explaining the importance of it (http://www.bbb.org/wisconsin/industry-tips/read/tip/credit-report-understanding-your-credit-report-2080).
The bottom line is that consumers are responsible for their own report.
Experts recommend you keep your contact information up to date with your bill collectors and respond to them promptly even if you think you don’t owe a debt.
Most importantly, be sure to look up all three credit reports for free once a year through the Annual Credit Report website (https://www.annualcreditreport.com/index.action) or by calling 1-877-322-8228.
The CFPB can help you report any problems you find (http://www.consumerfinance.gov/blog/four-steps-you-can-take-if-you-think-your-credit-or-debit-card-data-was-hacked/).
The BBB says you shouldn’t pay for credit monitoring and some of the companies offering those services could be scams to get your information.