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Fair Credit Reporting: 14.6.6.2 Heading Off New Identity Theft Problems

The consumer should not stop at cleaning up the problems the identity thief caused on the consumer’s current credit record. Because additional credit could be taken out in the consumer’s name or fraudulent checks cashed, the consumer should continue to monitor their consumer report to make sure that fraudulent items are not reinserted and that new fraudulent accounts are not added. The consumer should obtain a copy of the report every several months from each of the “Big Three” CRAs.

Fair Credit Reporting: 14.6.7.1 Generally

A consumer report lists active accounts, indicating whether an account is current, 30/60/90 or more days overdue, in collection, or charged off.148 Creditors update accounts electronically, often on a monthly basis. The current status of the account is continuously being replaced by more recent information. Old delinquencies disappear if the consumer catches up on payments, the amount owing changes, and the summary status of the account (e.g., “I9”) changes as payments are made.

Fair Credit Reporting: 14.6.7.2 New Loans, Refinancing, and Shifting Payment Priorities

It may be a good idea to move current credit card balances to cards with lower rates. Transferring balances so that no card has a balance above fifty percent of the available line of credit may also improve a credit score. However, some credit cards offer what looks to be a lower rate (a teaser rate), but the rate goes up after an initial period. In addition, many cards impose a “balance transfer fee” that will add to the consumer’s debt burden.

Fair Credit Reporting: 14.6.7.3 Negotiating Repayment Schedules

Where an account is about to become or has recently become delinquent, the consumer can attempt to negotiate with the creditor a more affordable payment schedule, with the explicit written agreement that the creditor not report the account as delinquent if the consumer keeps to the new schedule.

Fair Credit Reporting: 14.6.9 Providing Additional Information to the Creditor

A consumer report will not be a complete reflection of a consumer’s bill-paying history. Some creditors, such as utilities (e.g., telephone, gas, electric, cable television, water, and sewer), landlords, and small merchants may not report a consumer’s payment record to any CRA. There can also be good explanations for delinquencies and other adverse information. Much more productive than trying to submit such additional information to a CRA is to supply it directly to a creditor evaluating the consumer’s creditworthiness.

Fair Credit Reporting: 14.7.1 Automobile Loans and Leases

A substandard credit record is more likely to have a significant effect on the cost of financing a car, rather than to prevent the consumer from obtaining financing or a lease. Traditional automobile dealers will assign the financing, typically an installment sales contract, to assignees who distinguish between “A,” “B,” “C,” and “D” risks, based primarily on the consumer’s credit score. The lower the credit score, the higher the interest rate the assignee will require from the dealer for consumers who finance at the dealership.

Fair Credit Reporting: 14.7.2.1 Underwriting Guidelines Vary by the Class of Mortgage Loan

There are no hard and fast rules about what types of credit problems will lead to denial of a mortgage application, because there are so many different underwriting guidelines, depending on whether a mortgage will be purchased by the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), or some other secondary market player, and whether the mortgage will be insured by the Federal Housing Administration (FHA), Veterans Administration (VA), Rural Housing Service (RHS) (formerly Farmers Home Administration or FmHA), or a private mortgage

Fair Credit Reporting: 14.7.2.2 Underwriting Factors

Most home mortgage applications are evaluated using one of several standardized underwriting programs. Key to these programs will be the consumer’s credit score and the contents of the consumer’s credit report. Often the lender will obtain information from the “Big Three” nationwide consumer reporting agencies and will review several different credit scores for the consumer. Mortgage lenders also base their decision on other information as well—the size of the mortgage, the value of the home, the applicant’s income, the size of the down payment, and the like.

Fair Credit Reporting: 14.7.2.3 Steps to Take in Applying For a Mortgage

Applicants should take steps to correct any error on their credit report and improve their credit score and credit profile. Mortgage applicants should obtain a copy of their consumer report from all three of the major nationwide CRAs well before applying for the mortgage loan. It is not too early to begin planning a mortgage application over a year in advance, because the mortgage lender will be looking in particular for late payments within a year of the application.

Fair Credit Reporting: 14.7.3 Residential Lease Applications

Most landlords use specialized tenant screening reports in evaluating rental applications, which usually include the applicant’s residential rental history (e.g., eviction records), a criminal background check, and a credit report or score. There may be a few landlords who rent one or a small number of units without the assistance of a realtor, but these are increasingly rare.

Fair Credit Reporting: 14.7.4 Utility Service

Generally speaking, even a seriously blemished credit record will not prevent a consumer from obtaining basic utility service. Utilities often have a common law duty to serve all members of the public within their service areas.186 The general rule is that utilities cannot deny service because of collateral matters.187 On the other hand, the utility can deny service if there are any outstanding obligations to that utility.

Fair Credit Reporting: 14.7.5 Insurance

Insurers can use a consumer report or credit score to decide whether to insure an individual; whether to place the individual with one of their preferred, standard, or substandard companies (thus affecting their rates); and whether to non-renew or even cancel an insured. Some companies may raise premiums for lower credit scores. Insurers use standard consumer reports from the “Big Three” CRAs, specialized insurance credit scores, and also more specialized reports indicating claim history and medical information.

Fair Credit Reporting: 14.7.6 Access to a Credit Card

The average American household is flooded with offers from credit card issuers. When a direct mail solicitation offers a credit card to a consumer, the likelihood is that a CRA has sold a list to the creditor that the CRA has prescreened for one or two characteristics. Nevertheless, credit card issuers can deny credit even when they solicit the consumer. The card issuer runs the full consumer report only after the consumer sends in the application.196

Fair Credit Reporting: 14.7.7 Banking and Check Cashing

Banks may obtain a specialized consumer report from a CRA such as ChexSystems or Early Warning Services before they accept an applicant for a deposit account.200 These specialized reports will indicate if the consumer in the past has overdrawn other bank accounts or engaged in fraud related to a bank account.

Fair Credit Reporting: 14.7.8 Student Loans and Grants

A consumer’s credit record with a CRA is irrelevant to obtaining most types of federal student loans. (PLUS loans, taken out by parents of students and by graduate/professional students, are the main exception.) On the other hand, an existing default in another federal student loan does affect a student’s eligibility for new federal loans and grants.

Fair Credit Reporting: 14.7.9 Eligibility for Public Assistance

In a twist from most uses of a consumer report, government agencies may look at the report to determine if the individual has too much income or assets, not too little. The government agency will look for unreported income or assets or payments beyond the applicant’s reported income. One CRA often used by government agencies is The Work Number, which is an employment and income verification database. Another CRA used by the Social Security Administration is LexisNexis, although the company denies it is a CRA for these purposes.206

Fair Credit Reporting: 4.3.3.1 Mixed or Merged Files

There are multiple causes of “ownership” inaccuracies in consumer files, i.e., inaccuracies in which a credit account or other item belonging to one person appears in the consumer report of another. One of the ways this can occur, as discussed in § 4.3.2, supra, is through inaccurate reporting by a furnisher.

Fair Credit Reporting: 3.5.2.1 Free Annual Reports From the “Big Three” Nationwide Consumer Reporting Agencies

When seeking a free annual report from the nationwide CRAs, the consumer must send the request to the centralized source,385 which enables the consumer to obtain a consumer report from one or all nationwide CRAs.386 The nationwide CRAs jointly design, fund, and operate the centralized source, and consumers can request a report from that source by any of the following three methods:

Fair Credit Reporting: 14.8 Consumer Reporting Issues For Immigrants

Immigrants, especially the undocumented, have unique consumer reporting issues, relating both to their lack of a credit history and insufficient documentation as to their identities. Insufficient identification often prevents immigrants from being able to open deposit accounts and access other banking services, including loans, which can make it difficult for them to build positive credit histories.

Fair Credit Reporting: 14.9.1 Credit Invisible Consumers

One of the more difficult credit reporting issues is how to build a credit record when a consumer is “credit invisible,” i.e., when they do not have a credit history at the nationwide CRAs, or their history is too skimpy or “thin” to generate a credit score. The CFPB has estimated that about twenty-six million consumers, or 11% of the adult U.S. population, lack a file at the nationwide CRAs.223 Another nineteen million consumers, or 8.3% of the adult U.S.

Fair Credit Reporting: 14.9.3 Alternative Data

There are also efforts to address the issue of credit invisibility by adding supplemental or “alternative” data to credit reporting files.238 Some of these efforts are promising, while others, such as “full-file” reporting of rental payments, payday loan or gas and electric utility payment history, pose significant risks to consumers.239

Consumer Arbitration Agreements: 11.4.1 General

The Federal Arbitration Act (FAA), Uniform Arbitration Act (UAA), and revised Uniform Arbitration Act (revised UAA) enumerate limited grounds upon which a court may vacate an arbitration award. All of these grounds concern the nature of the arbitration process, and not the correctness of the arbitrator’s rulings of law or fact.

The FAA provides the following four grounds:

Consumer Arbitration Agreements: 11.5.1 Are There Independent Grounds to Vacate on the Merits?

The Federal Arbitration Act (FAA), Uniform Arbitration Act (UAA), and revised UAA do not directly list any grounds to vacate an arbitration award based on its merits, and the law is unsettled as to whether courts will imply such an independent ground to revoke an award. One school of thought is that a party can only challenge an award on the merits by bringing the challenge under one of the grounds enumerated in the FAA, UAA, or revised UAA, as applicable.