The Bangor Daily News provided a service to its readers recently by focusing attention on the importance of credit scores. The Aug. 1 editorial, “Your Credit Score,” highlighted the need for consumers to understand how scores are derived and to periodically review their credit reports.
Based on my agency’s experience assisting consumers and enforcing Maine’s Fair Credit Reporting Act, I want to offer additional details and recommendations. First, the editorial indicates that current law requires the three major credit reporting agencies to “give you a free credit report once a year.” Readers should be aware that they must specifically request their reports. They can do so easily online at the official, government-approved website, www.AnnualCreditReport.com.
Note that the word “free” does not appear anywhere in this website address. Sites with the “free” designation typically charge monthly fees for credit monitoring services. Despite what we hear from well-produced television ads promoting free credit reports, in this case “free” doesn’t mean what it says.
Consumers without access to a computer can call my agency at 800-DEBT-LAW (800-332-8529). We gladly will mail out forms and addresses to be used to request no-cost annual reports from the credit reporting agencies.
The editorial correctly points out that the new federal financial reform law eventually will provide consumers with better access to credit scores, by requiring creditors and other companies that use the scores to tell consumers their scores if they are turned down for credit or if a low score makes goods or services more costly. That same federal law also requires the soon-to-be-created federal Bureau of Financial Consumer Protection to study and recommend how to make scores most helpful to consumers by ensuring that the scores disclosed to consumers match the ones being used by creditors and other companies.
In some ways, however, we are concerned with the fixation on credit scores, because such scores merely are a reflection of the content in our credit reports. In other words, if our credit reports contain information that shows we have not paid debts when due, or that we have liens filed on our properties for nonpayment of taxes, then our credit scores will be low. Likewise, if there are errors in our reports that cause low scores, we must address those errors in order to raise our scores.
The Fair Credit Reporting Act is an excellent law that has been around for about 40 years. It requires credit reporting agencies to accept disputes from consumers, then either verify information as accurate or delete that information. If we obtain our credit report and find errors, it’s not our responsibility to locate the companies that have submitted that inaccurate information to the credit agencies. Rather, we simply can write to the credit reporting agency whose report contains the error, and dispute the error. Under Maine law, the credit reporting agency has just 21 days either to verify the information as accurate or delete it.
Finally, the editorial tells the tale of a consumer whose credit card limit was reduced, making it seem that the consumer had used a larger percentage of available credit, thus driving the consumer’s score down. While it is unusual for consumers to have only one account such that a single action would greatly affect the score, it does point out the importance of talking to your lender or another knowledgeable source before making changes that you think will improve your score.
For example, consumers sometimes close all their old, unused accounts, thinking it looks bad to have so many accounts active. However, since the average age of credit accounts is a factor in credit scores, closing all older accounts leaves only your “newer” accounts active, making it seem as though you have used credit for a only short time. So talk with your banker, lender or other trusted financial adviser — or call my office — before making moves you think will improve your score.
While credit scores are important, it’s actually the content of our credit reports that is far more important. If your scores are low, first check your reports to make sure they don’t contain harmful errors. Other than that, time is your best ally, and if you can make current payments when due and pay down credit balances your scores will improve surprisingly quickly.
Will Lund is superintendent of Maine’s Bureau of Consumer Credit Protection.