How to Mend a Credit Report That's Not Really Broken

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How to Mend a Credit Report That's Not Really Broken

How to Mend a Credit Report That's Not Really Broken

By BARBARA WHITAKER

BRIAN GRAHAM prides himself on paying his bills on time. So after he applied for a mortgage earlier this year, it came as a surprise that he was unable to qualify for a low adjustable rate.

The culprit was a $72 bill for a cellphone service cancellation fee - one he had disputed with AT&T Wireless. Mr. Graham said he thought the matter had been resolved, but it had instead been placed on his credit report.

"Brian, this isn't good," Mr. Graham recalled the mortgage agent telling him. "I would do something about it if you can." He tried, but after months of letters and phone calls, he has hired a lawyer and filed a lawsuit to try to clear his name.

Mr. Graham, 41, who lives in Oxford, Mich., and owns a business making foot and ankle braces, learned how hard it can be to clean up one's credit history, even when it is soiled in error.

Sometimes the dispute is over a small sum. Other cases may involve identity theft or something as ludicrous as being listed as dead. (It happens.) But once bad information is on file, removing it can be difficult.

"What we have is an industry that has completely run amok and is continuing to publish inaccurate information that harms consumers and does so without giving consumers an adequate remedy," said Ian Lyngklip, a lawyer in Detroit who is representing Mr. Graham. "Every one of these cases is like taking a little day excursion into the twilight zone."

Lawyers and consumer advocates say the system is overwhelmed. Rather than truly investigating complaints, they say, the big credit bureaus make only cursory checks.

Norm Magnuson, a spokesman for the Consumer Data Industry Association, which represents the major reporting agencies, defended the system, saying it handles huge volumes of information and processes complaints efficiently. The industry is required to resolve disputes in 30 days, he said, but in 80 percent of cases it does so in 10 days.

In June, U.S. PIRG, the Washington lobbying office for state Public Interest Research Groups, released a survey showing that 80 percent of credit reports had mistakes; one in four had errors serious enough that credit could be denied.

Complicating matters, lawyers say, collection agencies increasingly place even questionable debts on credit reports.

Richard J. Rubin, a lawyer in Santa Fe, N.M., who has worked extensively in the area, said, "They use the pressure of the negative report to the credit bureau, that's the pressure point, to make people pay the disputed debt."

Rozanne Andersen, general counsel with the American Collectors Association International, said members of her trade group were well informed of their duties on debt reporting and handling disputes. "I strongly disagree with the statement that debt collectors, when acting as data furnishers, avoid their responsibilities to update those credit reports,'' she said.

She said, however, that debt collectors had been frustrated because credit reports were not being updated quickly enough after errors were reported to the credit bureaus.

What can consumers do? First, they should know their rights and keep a watch on their credit reports. Ed Mierzwinski, consumer program director at U.S. PIRG, recommends that consumers check their report months before applying for a car loan or mortgage. By law, the big three national reporting bureaus - TransUnion, Experian and Equifax - must provide consumers a report once a year for $9, and consumers will soon be able to get one free report annually upon request.

Six states, including New Jersey, already require free reports. The new requirement is being phased in by region for the rest - the West Coast in December, the Midwest in March 2005, the South in June 2005 and the East Coast in September 2005. The changes in the disclosure requirements were part of the Fair and Accurate Credit Transaction Act, which passed Congress in November.

But consumers still face a big challenge in fixing errors.

The place to start, lawyers say, is the credit reporting bureau. Under an older law, the Fair Credit Reporting Act, the bureaus must initiate an investigation after being notified by the consumer of a disputed entry. It is a good idea to notify the creditor, too. If the investigation does not resolve the dispute, consumers may ask the credit reporting agency to include a statement of the dispute in their files and in future reports.

But if the creditor says a debt should stay on a report, "the bureaus believe they are entitled to keep it on regardless of what the consumer says or provides," said Leonard Bennett, a lawyer in Newport News, Va., specializing in such cases.

Ultimately, the only recourse for consumers may be to sue the creditor or credit bureau for damages for not conducting a reasonable investigation.

When a collection agency is involved, consumers should demand proof that a debt exists. The agency must note the dispute in any report to a credit bureau and must also establish the validity of the debt before continuing collection efforts.

Although Mr. Graham said he thought he had resolved the issue with AT&T, the debt was referred to a collection agency. After he sent proof that AT&T had accepted his final check, he thought the issue had been settled.

A year later, though, another collection agency demanded payment. He again presented proof of payment, only to be contacted by a third agency, NCO Financial Systems, outside Philadelphia. This time, he said, he received harassing calls and seemed unable to satisfy the agent. Finally, someone at NCO told him to fax proof that he was not responsible for the debt. Again, he thought the matter was settled.

But in March, when Mr. Graham applied for a mortgage, he said he found that his credit score - a figure derived from credit accounts and bill-paying history, aimed at identifying who is most likely to repay debt - had dropped and he could not get the rate he wanted. This time, he sued NCO.

(Brian Callahan, a spokesman for NCO, said it did not comment on specific cases. He defended the company's practices, however, saying disputes were handled as required under federal law.)

Denise Gohman, 54, of Clear Lake, Minn., had a similar experience when, in November 2002, she was denied credit to buy a wedding dress for her daughter because her credit report said she was dead. Wells Fargo, which had given Mrs. Gohman a loan to pay college tuition for another daughter, had erroneously listed her as dead after that daughter's death in 1998. Armed with documentation, Mrs. Gohman notified the bank's student loan division of the mistake and believed the matter to have been resolved.

BUT in August 2003, when she went to buy a truck, she was not only denied credit - Wells Fargo still listed her as dead - but, she said, she was taken into a back room of the dealership and accused of identity theft.

It was not until she hired a lawyer and filed a lawsuit that her report was corrected.

Although a growing number of lawyers handle such cases, only a small fraction litigate the complex ones. Consumers should be sure to find lawyers familiar with the laws. Mr. Graham said he found his lawyer by going to the Web site of the National Association of Consumer Advocates.

"I don't know what the lesson is,'' he said. "I still operate in the realm 'Be honest, upfront and things will take care of themselves.' But this was a frustrating thing. It's like this big giant wheel that kind of rolls over people."