The credit industry does its best to keep accurate records when it comes to consumer credit history but sometimes mistakes happen. When an error occurs the powers that be will clean it up, but it’s up to you to bring it to their attention and file a dispute.
But what is the basis of a credit dispute? There are three laws which protect you and govern who can use your credit information and how they do so. Here is a summary of those laws and how you can put them to work:
1. Fair Credit Reporting Act
If you only study up on one credit law, learn about the Fair Credit Reporting Act (FCRA). This is the cornerstone of all consumer credit protection and is administered by the Federal Trade Commission. For starters, FCRA is the law that allows you to get a free credit report from each credit bureau once a year.
Get your credit report and go through it. According to a recent government study, 20% of all credit reports have material errors. That includes items that are just plain false like accounts that don’t belong to you and reports of negative items that never happened. But you have more power at your disposal.
The FCRA defines an error as any information that is inaccurate, unverifiable or incomplete. That means if a creditor is unwilling or unable to prove a negative item on your credit report, the credit bureau will fix your credit report by removing the item. This happens often because companies merge with other companies, are bought and sold and also go out of business. As a result, many creditors simply don’t have access to the documentation and that means they can’t prove their claim against you. If that’s the case, the negative information has to come off your credit report.
On top of that, even if the negative information is technically accurate, it may be incomplete. For example, let’s say you received a bill but refused to pay it because you were shipped the wrong item and the store would not accept the return. Did you pay the bill? No. But there is no way you should be forced to either. As a result, this listing on your history is incomplete because it doesn’t tell the entire story. If you prove your case to the credit bureau they will remove that history from your report as well.
The FCRA also lays out how long negative information can stay on your credit file and how quickly mistakes need to be fixed once you bring them to the attention of the credit bureaus and creditors.
Last, this law mandates that if an organization takes adverse action against you (doesn’t offer you a job, refused to give you credit or charges you higher interest rates) based on what they see in your credit report, they have to tell you which credit bureau issued the report they reviewed. That allows you to go back to the bureau and request a correction if you spot a mistake.
2. Fair Credit Billing Act
The FCBA makes it clear that you can’t be charged for something you didn’t buy. It also provides a remedy if the charges are wrong, you received the wrong or damaged items, you don’t get proper credit for payments you make or if your statements are sent to the wrong address.
3. Fair Debt Collection Practices Act
If any of your creditors turn over your unpaid bills to a collection agency, this law has your back. It spells out when, where and how collectors are allowed to contact you. The law prohibits collection companies from pestering you just to be a nuisance.
If you inform them that you are working with an attorney, they can’t contact you at all. They can’t threaten to report false information about you to credit bureaus or use abusive language. If a collection agent does any of these things (among a list of many other bad acts) they will land in hot water.
How to Use These Laws
When you identify a mistake on your credit report write to the bureaus and creditors at the same time. Make a copy of the report that shows the error, include your evidence that supports your claim and reference the law you are basing your dispute on. Chances are good you’ll get the satisfaction you are looking for if you have a solid claim.
Sometimes it feels like the big credit organizations have all the power but that’s simply wrong. If you understand your legal rights, exercise them and have a solid dispute, you can get your credit file cleaned up.
Neal Frankle is a CFP ® in Los Angeles. He is also the chief editor of WealthPilgrim.com and Mcmha.org.