Facts for Consumers from the Federal Trade Commission

Solving Credit Problems -- May 1992

If you are having problems getting credit or paying your monthly 
bills, you may be tempted to turn to businesses that advertise 
quick and easy solutions to credit problems. But do not be 
misled. There are no instant solutions. Although some credit 
counseling businesses "guarantee results or your money back," you 
may find that there are hidden strings attached or that the 
company is gone when you want your money back.

There are steps you can take to help solve your credit problems. 
However, solving them takes time, patience, and some 
understanding of the law. This brochure may help you. It explains 
why your credit history is important, how to build a credit 
history and establish credit, and what can be done to improve a 
bad credit history. It also suggests ways to help deal with debts 
you may have, possibly by using a non-profit Consumer Credit 
Counseling Service.

Why Your Credit History is Important

Although creditors usually consider a number of factors in 
deciding whether to grant credit, most creditors rely heavily on 
your credit history. To learn how you have handled credit in the 
past, most creditors obtain a report from your local credit 
bureau. Credit bureaus gather and sell credit information about 
consumers and are a principal source of information about your 
credit history. Your credit bureau report is based on information 
supplied over time by your creditors. It also provides 
information on where you live and work and may note other matters 
of public record such as judgments or bankruptcies. Your report 
records payments you have made on credit cards, installment 
loans, and other credit accounts and helps creditors predict 
whether you are likely to be a good credit risk. A history of 
timely credit payments helps you get additional credit.

Some creditors are reluctant to grant credit to consumers who 
have not established a "track record" with other creditors first. 
In addition, many creditors will not extend credit to consumers 
with a history of delinquent payments, repossession, judgments, 
or bankruptcy. If you are in either situation, be wary of ads 
that promise you "instant credit" or "a major credit card 
regardless of your lack of credit history or your past credit 
record." The fact is that all legitimate creditors want to know 
whether you are likely to be a good credit risk. Whether you get 
credit will depend on whether your qualifications meet the 
creditor's criteria. No one can guarantee you credit in advance.

How to Build A Credit History and Establish Credit

Building a good credit history is important. If you have no 
reported credit history, it may take time to establish your first 
credit account. This problem affects young people just beginning 
careers as well as older people who have never used credit. It 
also affects divorced or widowed women who shared credit accounts 
that were reported only in the husband's name. If you do not know 
what is in your credit file, check with your local credit 
bureaus. Most cities have two or three credit bureaus, which are 
listed under "Credit" or "Credit Reporting Agencies" in the 
Yellow Pages. For a small fee, they will tell you what 
information is in your file and may give you a copy of your 
credit report.

If you have had credit before under a different name or in a 
different location and it is not reported in your file, ask the 
credit bureau to include it. If you shared accounts with a former 
spouse, ask the credit bureau to list these accounts under your 
name as well. Although credit bureaus are not required to add new 
accounts to your file, many will do so for a small fee. Finally, 
if you presently share in the use of a credit account with your 
spouse, ask the creditor to report it under both names.

Creditors are not required to report any account history 
information to credit bureaus. If a creditor does report on an 
account, however, and if both spouses are permitted to use the 
account or are contractually liable for its repayment, under the 
Equal Credit Opportunity Act you can require the creditor to 
report the information under both names. When contacting your 
creditor or credit bureau, do so in writing and include relevant 
information, such as account numbers, to help speed the process. 
As with all important business communications, keep a copy of 
what you send.

If you do not have a credit history, you should begin to build 
one. If you have a steady income and have lived in the same area 
for at least a year, try applying for credit with a local 
business, such as a department store. Or you might borrow a small 
amount from your credit union or the bank where you have checking 
and savings accounts. A local bank or department store may 
approve your credit application even if you do not meet the 
standards of larger creditors. Before you apply for credit, ask 
whether the creditor reports credit history information to credit 
bureaus serving your area. Most creditors do, but some do not. If 
possible, you should try to get credit that will be reported. 
This builds your credit history.

If you are rejected for credit, find out why. There may be 
reasons other than lack of credit history. Your income may not 
meet the creditor's minimum requirement or you may not have 
worked at your current job long enough. Time may resolve such 
problems. You could wait for a salary increase and then reapply, 
or simply apply to a different creditor. However, it is best to 
wait at least 6 months before making each new application. Credit 
bureaus record each inquiry about you. Some creditors may deny 
your application if they think you are trying to open too many 
new accounts too quickly.

If you still cannot get credit, you may wish to ask a person with 
an established credit history to act as your co-signer. Because a 
co-signer promises to pay if you don't, this can substantially 
improve your chances of getting credit. Once you have repaid the 
debt, try again to get credit on your own.

What Can Be Done to Improve a Bad Credit Report

You are entitled by law to correct any inaccurate information 
that appears in your credit bureau file. If a creditor rejects 
your application because of negative information in your credit 
bureau report, it must identify the credit bureau involved. At 
your request, the credit bureau must disclose the contents of 
your credit file. If you act within 30 days of being turned down, 
there is no charge for this service.

Check to see whether the information in your credit report is 
accurate and complete. You have the right, under the Fair Credit 
Reporting Act, to dispute the completeness or accuracy of any 
information in your report. When you do so, it helps to tell the 
credit bureau, in writing, why you think the information is not 
correct.  Unless your dispute is frivolous or irrelevant, the 
credit bureau then must reinvestigate the matter. The credit 
bureau must correct any information that it finds is not reported 
accurately.  Information that cannot be verified  must be 
deleted. If you disagree with the results of the credit bureau's 
reinvestigation, you may file a brief dispute statement 
explaining your side of the story. At your request, the credit 
bureau will note your dispute in future credit bureau reports.
Be aware that when negative information in your report is 
accurate, only the passage of time can assure its removal.  
Credit bureaus are permitted by law to report bankruptcies for 10 
years and other negative information for 7 years. There is 
nothing that you (or anyone else) can do to require a credit 
bureau to remove accurate information from your credit file until 
the reporting period has expired. Don't be misled by ads aimed at 
people with bad credit histories, judgments, or bankruptcies.  
Promises to "repair" or "clean up" a bad credit history can 
almost never be kept.

How to Deal with Your Debts

A sudden illness or the loss of your job may make it impossible 
for you to pay your bills on time. Whatever your situation, if 
you find that you cannot make your payments, contact your 
creditors at once. Try to work out a modified payment plan with 
your creditors that reduces your payments to a more manageable 
level. If you have paid promptly in the past, they may be willing 
to work with you. Do not wait until your account is turned over 
to a debt collector. At that point, the creditor has given up on 
you.

Automobile loans present special problems. Most automobile 
financing agreements permit your creditor to repossess your car 
any time that you are in default on your payments. No advance 
notice is required. If your car is repossessed you may have to 
pay the full balance due on the loan, as well as towing and 
storage costs, to get it back. Do not wait until you are in 
default. Try to solve the problem with your creditor when you 
realize you will not be able to meet your payments. It may be 
better to sell the car yourself and pay off your debt than to 
incur the added costs of repossession.

How to Evaluate Credit Repair Companies

If you are having trouble paying your bills, you may be tempted 
to turn to a company that claims to offer assistance in solving 
debt problems. Such businesses may offer debt consolidation 
loans, debt counseling, or debt reorganization plans that are 
"guaranteed" to stop creditors' collection efforts. Before 
signing up with such a business, investigate it thoroughly. Be 
sure you understand what services the business provides and what 
they will cost you. Do not rely on oral promises that do not 
appear in your contract. Also, check with the Better Business 
Bureau and your local consumer protection office. They may be 
able to tell you whether other consumers have registered 
complaints about the business.

Consumers who turn to such businesses for help sometimes 
encounter additional problems. For example, debt consolidation or 
other large short-term loans may have high hidden costs and may 
require your home as collateral. An unscrupulous company may 
misrepresent the terms of such loan agreements; if so, you could 
end up losing your home.

Businesses offering debt counseling or reorganization may charge 
substantial fees or a percentage of your debts, but fail to 
follow through on the services they sell. Some may do little more 
than refer indebted consumers to a bankruptcy lawyer, who charges 
an additional fee. Businesses advertising voluntary debt 
reorganization plans or "Chapter 13" relief may fail to explain 
that Chapter 13 debt adjustment actually is a form of bankruptcy. 
To qualify for it, you must have a source of regular income and a 
plan for repaying your creditors that meets the approval of the 
bankruptcy court. Businesses that sell bankruptcy-related 
services may not tell you all that is involved or assist you 
through what can be a complex and lengthy legal process. Debt 
problems can be distressing, but be careful when selecting a 
solution. Some "solutions" may only add to your problems.

Where to Find Low-Cost Help

If you need help in dealing with your debts, you may want to 
contact a Consumer Credit Counseling Service (CCCS). This is a 
non-profit organization with more than 850 offices located in 50 
states. CCCS counselors will try to arrange a repayment plan that 
is acceptable to you and your creditors. They will also help you 
set up a realistic budget and plan future expenses. These 
services are offered at little or no charge to you. You can find 
the CCCS office nearest you by checking the White Pages of your 
telephone directory or by calling from a touch-tone phone 
1-800-388-2227 to get the telephone number.  However, if you have 
other questions, contact:

National Foundation for Consumer Credit, Inc.
8611 Second Avenue, Suite 100
Silver Spring, Maryland 20910
(301) 589-5600

In addition, non-profit counseling programs are sometimes 
operated by universities, military bases, credit unions, and 
housing authorities. They are likely to charge little or nothing 
for their assistance. Or, you can check with your local bank or 
consumer protection office to see if it has a listing of 
reputable, low-cost financial counseling services.

Where to Find More Information

The Federal Trade Commission enforces a number of federal laws 
involving consumer credit, including the Equal Credit Opportunity 
Act, the Fair Credit Reporting Act, the Truth in Lending Act, the 
Fair Credit Billing Act, and the Fair Debt Collection Practices 
Act. It also provides free brochures explaining these laws. For 
these or related publications, such as Building a Better Credit 
Record, Women and Credit Histories, and Credit Billing Blues, 
write to: Public Reference, Federal Trade Commission, Washington, 
D.C. 20580.

Although the Commission cannot solve individual problems for 
consumers, it can act when it sees a pattern of possible law 
violations develop. If you have a complaint that may involve a 
violation of consumer protection law, write to: Correspondence 
Branch,  Federal Trade Commission, Washington, D.C. 20580.

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