This morning, Kevin Drum has a horror story about a tax lien that seemingly can't be removed from a credit report. Long story short: confusion/error settling father's estate; tax lien incurred/cleared up; tax lien still there, making it hard to get a loan.But as a reader points out in the comments, it's not quite that simple. A valid tax lien is a credit event. Just as with a bill collection, it doesn't go away merely because you've paid it. The credit reporting agencies merely add the notation that it's been satisfied.
On the other hand, I can attest from personal experience that those smudges have staying power. Through a series of bizarre events including a misfiled state tax return, multi-state residence, and an apparently incorrect address, the state of New York slapped me with a tax lien a few years back. The State of New York has since admitted they were entirely in error, and indeed, that they owed me about $500 in refund.
(Not that they paid. Funnily enough, the statute of limitations for getting a refund from the state is much shorter than their statute of limitations for coming after arrears.)
The judgement has been vacated, the lien rescinded, yet it's still there on my credit report. But the fault, Horatio, lies not in our credit reporting bureaus, but in ourselves. Or rather, our governments.
The procedure for getting an error removed from your credit report is to send them a letter, and give them thirty days to investigate. You may be astonished to realize this, but there is a population of people in this country with very low morals, and no, I don't just mean Lehman bankers. Those scurrilous creatures will fake letters, even fake notarized letters, to gain personal advantage. That kind of person is somewhat overrepresented in the population of people who have bad credit. So the credit bureaus don't just accept a letter from the nice folks at the IRS. They call the IRS to check.
And apparently, in my case, when they check, the New York courts merrily inform them that I sure did have a tax lien against me, though it's been "cleared". Which sounds like "paid". And there it sits.
Eventually, I'll have to actually go to whatever absurd lengths are required to truly scrub the thing, but it hasn't been a huge priority--the hit to my FICO score will only really matter if and when I want a mortgage. And if I can't, I will be very mad.
It is terrifying the power that these bureaus have assumed over us--when my bank made an error on my car loan, my first worry wasn't that they'd upped my payment by $60, but that the subsequent late charge for an undersized loan payment might show up on my credit report. This was only slightly less panic-inducing than thinking that it might show up as a shadow on a chest x-ray. The bank fixed its error immediately and cheerfully. (And may I commend the Navy Federal Credit Union to all who are eligible for membership). I doubt Experian would have been so accomodating.
But maybe it's worth remembering that the tyranny that credit scores exercise over our imagination have everything to do with the fact that we've built a society so utterly dependent on credit. If you didn't need a credit card, an auto loan, and probably a mortgage to be considered middle class in this society, these opaque and unresponsive bureaus wouldn't be the most important source of information about us.
Photo by Flickr user TheTruthAbout . . .
Well now, that is not the only things we use credit history for. We also need it for auto insurance (???) cell phone contract, and any service with a commitment. One's credit is checked prior to renting an apartment in most places.
And, really, I cannot blame all the industries that rely on these reports. One's credit score is an indication of how much one can be trusted. Without it, transaction costs will have to go up. Contracts will require greater down payments, security deposits, membership fees, or whatever else someone chooses to call them. Or we could do away with most of those payments, and change everything to a pay-up-front policy, thus greatly lessening the ranks of car owners, home owners, cell phone owners, etc.
Or we could do away with most of those payments, and change everything to a pay-up-front policy, thus greatly lessening the ranks of car owners, home owners, cell phone owners, etc.
Is that necessarily a bad thing? I also have to wonder if Ms. McArdle would be in favor of some Gov't regulations in this case. Or would she rather not have the Credit Reporting Bureaus exist. After all most, if not all, suck at customer service(the customer being you and me). We made do with out them for how long? The other question I have is how they determine the score. Just lets say I think certain things ding it more than others.
We are not the customers, the people extending the credit (or auto insurance, etc.) to us are the customers.
We are the product being sold.
"Is that necessarily a bad thing?"
Of course it would be a terrible thing! I like being able to borrow a few grand on the basis of my word, and the only way the bank can afford to do that is because they can look at my credit report. Also, I don't think most people that are unable to come up with the entire cost of a two year contract will appropriate having their phones taken away. And very few would appropriate very high car down payments.
Sure the credit reporting system needs to have a few kinks worked out of it, but I think overall it works fairly well.
Megan, you probably don't have to worry about this at mortgage time. Probably.
Many moons ago I got into a dispute with Sprint, when they were first offering cellular service. Their billing system was famous for being screwed up, and somehow or other they lost track of one of my payments. I did the whole "here's the cancelled check thing," etc., but it didn't matter. They demanded payment, I cancelled service, they sent me to collections, the whole deal.
As I recall, it's for about $65. I have more than twice that in my pocket, cash, right now - but they ain't getting it. Ever.
I have gotten several mortgages over the years, even though this unreconciled situation is still listed. Each time I've simply written a letter explaining it, pointed out that I could readily pay it (but won't, because I don't owe them the money), and point out that in all other ways I am a model credit risk.
So far, no problems.
Your mileage, of course, may vary - especially after the subprime fiasco.
Meghan,
I can't imagine there are people to whom this never happens. I was sent to collections by my dentist. He billed me for the portion that my insurance didn't cover as I left the office. Months later I get a call form a collection agency about a outstanding bill for $1,500. After much fighting it turns out he never bothered to bill my insurance company. He did and it was all cleared up.
Similar story. A few years back I was renting a vintage apartment in Chicago. About 13 months into a 24 month lease the landlord decides the heating bills are too high and decides to replace the ancient boiler and radiator system with forced air heat. He tells us the workmen will clean up after themselves and we'll never even notice them.
We knew we were in trouble when they pulled down the plaster ceiling in the master bedroom. Per the landlord - "You guys can sleep on the couch". Well silly us we trusted that this would all be done in a week and thought we could endure to get modern heating.
We went a week without anyone showing up. In July, in Chicago, with no A/C and plaster dust everywhere. So we called the landlord. The next Monday they came back but instead of fixing the bedroom they demolished the kitchen. At this point we checked our lease and called the landlord and asked him to put us up in a hotel until repairs were complete. His reply "Stop being babies, its not that bad and I'm doing all this for your benefit". Well not really our benefit as heat was included in the rent...
So then we called the city and asked about our rights. Turns out in Illinois if a landlord lives in the building and has less than 5 renters then virtually none of the rental laws apply.
So we called the landlord and said we wanted to terminate the lease as the apartment was uninhabitable and we would no longer be paying rent until it was made so. So we moved to a hotel (at our own expense) and started looking for a new apartment. We found a new place a week later and moved. About 45 days later we received a notice from the court that a lien for non-payment of rent had been filed. Luckily we had pictures and had documented all of our communication with the landlord. We went before a judge and he almost laughed at my old landlord and released the lien. Well to this day - almost four years later - that lien is still on my credit reports.
Megan I feel your pain...
I have the same name as my father. We have different birth dates and different social security numbers. Yet, when I first checked my credit report, they had mixed up our credit cards. According to their own data, I had had credit cards since before I was born. Not only do they apparently have no incentive to make sure they have good data, they don't even bother to run any kind of internal integrity check on their data. A person with credit cards from BEFORE HE WAS BORN should have raised a huge red flag that there was a problem with that record.
I'm amazed that anyone trusts credit reports. The whole thing is based on assuming that all of the reports they receive are accurate and that the reports are correctly filed. Neither of which is apparently true nor do they seem to make much effort to verify any of their data.
I don't know how it works now, but credit reports used to be indexed by name and address. I used to get calls from debt collectors asking if I used to live in such-and-such a place, because a guy with my name lived there and didn't pay his bills.
My big beef with credit reporting agencies is they don't have any incentive to be scrupulously accurate on every single record. From the bank's perspective, there's no change in profitability as long as it's all mostly accurate, but as an individual "mostly accurate" can translate into an ongoing pain in the ass.
The agencies aren't so bad about misreported late payments. It's good to get a report a year or so before you are going to buy a house and challenge pretty much everything negative on it. It will get your report cleaned up with time to spare.
I was forced to review everything when some random person decided to change my home address on one of my credit cards...
"According to their own data, I had had credit cards since before I was born. "
I apparently got a Talbots credit card when I was 2yo.
The credit bureaus are creepy black boxes that can destroy your life without ever giving you much beyond a token chance to do anything about it or understand why it happened.
The laws governing them are a classic example of a small, dedicated beneficiary putting more pressure on government to shape things to their liking than the much larger group that is also affected by the laws, though in a much more diffuse way. What's the phrase? Concentrated benefits, diffuse payments. I think somebody won a nobel prize in econ for pointing out that bit of wisdom.
When the annoyance factor of the obscure workings of these beasts got high enough that the diffuse costs almost catalyzed into action against their interests, well, low-and-behold, we get the one free credit report per year and a few other token restraints on their otherwise unlimited ability to put together detailed pictures of you and sell them to anyone, including, in recent times, identity theives.
I'd love to see some effective regulation of them but doubt it's possible for the same reasons that preclude effective legislation against their perceived interests: even if you managed to get a good regulator put together in a fit of public pique with the credit reporting industry, those 3 players would immediately set about capturing that regulator and would have accomplished the task within a few years.
And at that point, things would be even worse because when faced with complaints, congress could say, "But they have this whole regulatory apparatus! Already solved that problem!"
The one regulation that might make some difference would be to make them feel some kind of financial pain for wrong information. Don't know how you can implement that, but I feel certain it would focus their minds on ways to get better at letting consumers correct incorrect information if there were a cost to them for not doing it.
That, and releasing the info to the wrong people should be unbelievably expensive for them. Like asbestos-level punitive damages expensive. That should just be unacceptable, rather than a case of "Oops! Thieves paid us for your information! Sorry about that! We'll try to avoid it in the future, but for now, look on the bright side: at least we got paid!"
Blighter grossly exaggerates the balance of power between credit bureaus and consumers. I'm a lawyer who has defended dozens of consumer lawsuits against the bureaus. There are lots of consumer protections in place, most notably a fee-shifting provision that allows a plaintiff's lawyer to get his attorney fees even if he only wins a judgment of $1. This encourages consumers to hold the bureaus' feet to the fire in the courts - and they do.
As Megan pointed out, in many cases the bureaus are simply repeatintg information whose inaccuracy is somebody else's fault. If you made it more expensive for the bureaus to do business, credit reports would become a lot more expensive and credit would be harder to get. Maybe that's a trade-off you'd willing to make. But Congress doesn't think it's a trade-off that most consumers would appreciate. And Congress is probably right: consumers can "freeze" their credit reports for a nominal fee, which makes identity theft impossible but also makes easy credit impossible. Very few consumers freeze their reports.
That's interesting. I would point out a few things in response:
1) Perhaps that should be more widely publicized, I had no idea. Though I suppose if I had a serious enough problem with my own credit score, I would discover that fact when I set about trying to take them to court, which leads me to my next point...
2) Saying that consumers have power because they can always take the bureaus to court seems a bit odd to me, yes, even if the rules of recompense of lawyers fees make this easier for consumers to do than would ordinarily be the case.
What about smaller errors that impact your life but are not worth the bother of taking them to court? Just SOL? Or should we feel okay about the black-box workings because we can rest assured if they ever get really out-of-whack, you can take all the free time you have from not being able to rent an apartment or get a job and devote it to your court case -- which you might not even have to pay for, assuming your lawyer wins! Hooray for that!
3) Lastly, on the credit-freeze provisions, first, why should it require a fee of any kind for me to stop a company from telling all kinds of information about me, correct & incorrect, to anyone who asks for it without so much as a by-your-leave from me?
Second, assuming it makes sense to put the burden on me to stop lies from being spread about me by anonymous, unaccountable bureacracies (or, yes, accountable through court action, whatever) my understanding is that such freezes work through refusing requests for credit information unless I expressly authorize it. But perhaps I think they will attend to this duty of theirs with the same level of care and detail that they have shown in compiling a record rife with error and refusing corrective action short of court-proceedings? Is there any reason to think they won't use my effort to opt out of their system --again, at my own cost -- to punish me through further "mistakes" (mistaken release of information, perhaps?) or other non-intended bits of ineptitude?
Frankly, the whole system is set up so that the people it most directly affects, the consumers, have the least ability to affect it. If a business gets bad credit information on someone they're out one sale, no big deal. If an individual's report is comprimised, their out their life, much bigger deal. But since the businesses are the consumers of the information, the reporting agencies have every incentive to respond to their needs: collect more data, with an emphasis on more rather than better, and allow easy access to anyone requesting it (they're the customers, after all) but only very limited access the actual specimens on whom all this data has been collected.
As nice as it is to learn that a plaintiff's lawyer feels the system is fine because one can always hire a plaintiff's lawyer, this seems a bit like saying police brutality is not a big deal, because you'll always win in court if they hurt you badly enough. Not comforting, especially coming from the lawyer who stands to profit from the court case he is recommending as the only solution.
Thanks, Blighter. For the record, I am not a plaintiff's lawyer (heaven forfend!) and I do not recommend that people entangle themselves with the legal system except as a last resort.
You seem to be starting from the presumptions that credit reports are systematically inaccurate and that the reporting companies are systematically reluctant to correct those mistakes. I am happy to report, based on a very wide experience, that neither of those presumptions is true.
If credit reports consistently contained substantive mistakes, they would not accurately predict a consumer's likelihood of repayment, and creditors wouldn't use them. As it is, they are like SAT scores: not perfect, but they do a pretty decent job and that's why they are in wide use.
Also, most people can get their credit reports corrected if they take a little time and have a little patience. If you anticipate a major need for credit (say you want to buy a house) and decide to be pro-active by pulling your reports, noting the inaccuracies, getting correct copies of papers that will rebut the inaccuracies, you will do just fine: send everything in to the bureau and they will probably get it right the first time, almost certainly the second. Unfortunately, most people are not pro-active: they try and buy a house, see a problem on their credit report, and then call up the bureau's 1-800 number and start screaming. This generally does not produce a positive result: bureau employees don't like getting screamed at any more than the rest of us do, and without paperwork they don't have a basis for rejecting whatever the source of the inaccurate information stated.
The majority of the people you hear about regarding credit reports are unhappy, which makes it easy to assume that everyone who uses a credit report is unhappy. Not so, or nobody would use them at all.
consumers can "freeze" their credit reports for a nominal fee, which makes identity theft impossible but also makes easy credit impossible.
Credit freezes DO NOT, I repeat, DO NOT make identity theft impossible. Speaking as someone who deals with this issue at work on a daily basis, credit freezes are rarely as effective or as helpful as they are made out to be. One of the biggest problems with credit freezes is that they give people a false sense of security and they ignore their credit files. ID thieves can and do get credit lines approved through means which do not involve a credit check, thus leading to ID theft that goes unnoticed until you received a court summons for a default judgement from a collection law firm.
Not to mention ID theft is hardly only limited to credit. Criminal ID theft, Tax ID theft, medical ID theft, mortgage fraud ID theft, the list goes on and on, and none of these have anything to do with your credit.
The big problem with the credit bureaus reporting inaccurate information is the fact that they never get held responsible for failing to report the accurate information they were told to report. Even when the reporting creditor reports the right info, the bureaus have a bad track record with correcting their own files. And since there is hardly and oversight of the bureaus except through a lawsuit, consumers get screwed on a daily basis.
Don't hold your breath for this to change however.
The big problem with the credit bureaus reporting inaccurate information is the fact that they never get held responsible for failing to report the accurate information they were told to report.
As a defense lawyer, I can assure you that this isn't true. Bureaus who report inaccurate information that causes real harm have to pay me and they often have to pay settlements or judgments. I have seen (though I haven't been a part of) cases in which consumers won six-figure judgments against credit bureaus.
The law does not require credit reports to be 100% accurate: if it did, we wouldn't have reports at all, and we'd be back in the days of asking a local banker to approve us based on what he had for lunch that day and whether he liked the cut of our jib. But the law does provide ample punishment for wrong information, as does the marketplace.
Bureaus who report inaccurate information that causes real harm have to pay me and they often have to pay settlements or judgments.
I should change my previous statement from "never get held responsible" to "not enough". Your "clients" are people who are wealthy enough to afford a defense attorney to fight the bureaus who have clearly violated their rights under the FCRA (Fair Credit Reporting Act). I deal with people who do not have either the money nor the time to hire a defense attorney to fight the bureaus when their rights are violated, and these people get screwed by the bureaus on a daily basis. I'm glad that attorneys like yourself are fighting the good fight, but to say that the system isn't grossly unbalanced in protecting the rights of consumers is simply inaccurate.
I have seen (though I haven't been a part of) cases in which consumers won six-figure judgments against credit bureaus.
For every case like that you can show me, I could show you a hundred cases of people who got screwed by the bureaus and never got chance to fight back. The law is certainly on the side of the consumer, that I agree with, but the application of justice thereof leaves a lot to be desired.
I deal with people who do not have either the money nor the time to hire a defense attorney to fight the bureaus when their rights are violated, and these people get screwed by the bureaus on a daily basis.
I'd like to know more about how you deal with these people and why they would need money to fight the credit bureaus. As I noted above, the FCRA is a fee-shifting statute, which means that consumer attorneys (which I would call plaintiff's attorneys) will recover their full fees even if they recover a small amount of money. As a result, there are plenty of FCRA plaintiffs' lawyers who take cases on contingency. Whoever these people that you deal with are, there are lawyers willing to help them for free.
I could show you a hundred cases of people who got screwed by the bureaus and never got chance to fight back.
Again, I must be missing something here. The FCRA's fee-shifting provision makes it easy for consumers to fight back. The courts even allow consumers to sue for emotional distress without requiring much proof of that. If a lawyer refuses to take an FCRA case, it usually means that he or she doesn't think the consumer suffered any damages at all - in which case the consumer by definition didn't get screwed.
I'd like to know more about how you deal with these people and why they would need money to fight the credit bureaus.
Filing a lawsuit against a credit bureau requires time and money that some people simply don't have, regardless of the chance that they may be reimbursed after the ruling. I can assure you that it is not "free". I am a private investigator who helps people resolve their issues associated with ID theft. After the issues get resolved with creditors and other reporting agencies, it's up to the bureaus to correct their own records. I agree that asking for perfection is unrealistic, but what we have now isn't a model of fairness either. There are a variety of situations that even a lawsuit wouldn't fix. For instance; employment denied based on an error reporting on your bureau, and by the time you force the bureau to correct it the job is already filled. You could say the same for a mortgage. There are several other examples that sure, I guess you could try and sue for something above the $1000 per violation plus court costs that the FCRA mentions, maybe in terms of pain and suffering, but as I said, many people don't have the time to do this. They need to get on with their lives and getting embroiled in a lawsuit with a credit bureau is a hindrance to this.
I'm sure that as a defense attorney you would be better off if more people filed lawsuits period (good for business!), but again this isn't realistic. I refer people who are candidates for these lawsuits to the NACA (National Association of Consumer Advocates)all the time, but I know that only a small percentage of them end up having the time to follow through.
The Bureaus have WAY too much control of our individual financial lives concentrated among three companies, and they are anything BUT consumer friendly.
One of the biggest problems with credit agencies is the inaccuracy of the information in their files. Some from identity theft, some from key-entry error, some likely from just the whims of gremlins as far as I can tell -- illegible ssn on a form, etc.
We're able to get free credit reports now because it was such a problem.
I would add credit-monitoring and correction to the list of life-skills we ought to teach young people.
I do have another question - just because something is on your credit report does it matter?
jmo3,
If you save money and put 20% down on a house or car loan, then NO, it doesn't matter. Credit scores are for people that plan to be in debt forever. Of course, if you have no debt, your credit score will be pretty good. Not that you would care at that point. If you only borrow for a house and your first car, then you only need a reasonable credit score at two points in life.
Actually, if you have no debt, your credit score would be nonexistent, which could make it more difficult to get credit if you need it. Some finance writers suggest that consumers who have no debt keep a credit card or two, use them once a month, and pay them off in full each month. This builds a positive credit history that will prove useful if credit is needed.
Joe,
I think what he means by "no debt" is not incurring credit card debt beyond paying your monthly balance regularly. I odn't think most people think of your charges for the month as incurring debt if you pay them off immediately.
This is absolutely true. My husband and I have no debt other than the mortgage (in my name alone, from before the marriage), and while he has had student loans and car notes, he paid them off so long ago that they don't count for credit scoring purposes. He has no credit score at all, and as a result, we were unable to obtain a mortgage when we wanted to sell our house and move. We had a six-figure debt-free income far above the requirements for our desired payment, substantial cash assets, stable employment, and the capability to put 50% down on the new house, and it didn't matter.
I didn't pursue subprime lenders, primarily because the whole mess aggravated me so badly, so it's possible that theoretically we could have found someone to lend to us at a higher rate. However, the local banks wouldn't touch us, and openly admitted that it was solely because of the credit score. It left even their loan officers baffled -- they thought we were dream clients.
"If you save money and put 20% down on a house or car loan, then NO, it doesn't matter."
You do realize that even if you put 20% down on your house, the interest rate on the remaining 80% is determined in large part from your credit score, yes? It certainly matters even if you don't keep credit card balances, unless you plan on paying for all cars/houses in cash.
I have a friend who used to work in the finance office of a car dealerships and he said - as an example - that medical bills either past due or in collections had no impact on the ability to get financing or the rates.
Car dealers have traditionally been very libertine with their credit policies for various reasons, not the least of which is that in new car sales, the manufacturer of the asset and the credit provider for purchasing the asset are deeply intertwined. Within their own limits to borrow from the larger financial system, they can take any risk they good and well please in order to get another car on the road. A car on the road means many years of repeat business in parts and service, so the return is likely to be good even if the risk of payment problems is increased. Plus, if they have to repossess the asset, they have all necessary infrastructure to service and resell it.
However, if you try to obtain car financing through a bank or credit union, where the lending party's only involvement in the transaction is collecting the interest, the wheels turn more slowly, the stack of paperwork is much thicker, and the loan amount and term will usually be limited by the age and nominal trade-in or auction value of the vehicle.
One of my favorite stories from my 'it's expensive to save money' file involves Sprint. I wanted my son to change from his AT&T phone at college to Sprint as he could register it in our area code and calls would have been 'local.' His enthusiasm for this idea didn't match mine, and he got off without registering the phone. Subsequent attempts only landed us in some nether world; a successful call was never made on the phone. I paid the bill for both phones and saved the documentation for the last $600 dollar or so payment I made. It had gotten registered to him and when he went to get a mortgage this came up; he 'hadn't paid the bill;' it was nice to have the documentation. Some 18 months later a Sprint representative called him early one morning in his new house waking him up and happily informed him that they found his bill was paid.
Heh, that reminds me -- at my very first job, at age 15, I had a garnish placed on my wages for child support.
The best part? The child was 16.
I feel for you, Megan. It may not be that bad, however. I had an identity theft issue about 9 years ago. Near as we can figure, somebody got hold of a preapproval offer and managed to get a card issued. Charged it up to only about $350 though. When I found out about it, nearly a year later, the balance had grown to about $1,400 through interest and late charges. I refused to pay, went through tons of hassle trying to get it removed, in the end to no avail. CC issuer wrote it off in December, 2002.
To this day I still get an occasional contact from a collector on this. I'd long decided to wait for it to age out--I'm really looking forward to January 2010. The good news is my scores are fine (but could be higher!) and I've managed in that time to buy a house, a car, and get credit for all sorts of smaller things.
So you may not have to do anything, other than wait for it to age out of your report.
Moral: shred everything!
Speaking of free from the tyranny of credit scores: A couple years ago, having purchased a house, but paid off a car and having no other debt to speak of, I had one of the most satisfying experiences of my life. After a disagreement with Sprint about my cell phone bill that they would not resolve in my favor, I simply told them: "I'm not giving you any more money. When you sell my debt to a collections agency I will cheerfully pay them. Go to Hell."
And that's exactly what happened. I don't know if it saved me any money, but I knew I'd have years to recover from that little consumer debt that went to collections. And I still smile at how nice it felt. Honestly, I don't know my current score. Haven't needed it since I bought the house. Not planning on needing it unless I move.
Holy moly. The takeaway I'm getting from this thread? Stay away from Sprint.
I don't want to sound like I'm moralizing here, everyone should live the way they want, but credit way over rated. It's a luxury, not a necessity, and should be treated as such. I'm terribly unorganized and refuse to go near a credit card. suprise suprise, I get by fine. I suspect I'll want a house loan someday, but not unless I can afford a solid down-payment, in which case credit scores are much less relevant. Life is good, why make it so complicated?
I think I turned against the whole modern financial system when I was in college and I had a job where I took people's credit card info over the phone all day. I used to fantasize about writing them down (those of particularly unpleasant customers) and making donations to an orphanage in Mexico.
The point is that I saw just how easy that kind of identity theft is, and decided to opt out as much as possible.
make that "consumer financial system"