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California Credit Law Blog
Published by Kemnitzer, Anderson, Barron, Ogilvie & Brewer, LLP

• New Edition of Credit Scores & Credit Reports
  

  Evan Hendricks is a leading expert on credit scores and credit reports. His book, aptly named Credit Scores & Credit Reports, How the System Really Works, What You Can Do, 3d Edition, is now available in paperwback on Amazon. Anyone interested in how the credit bureaus operate should read this book.
  

  Hendricks covers credit scoring, obtaining your credit report, disputing errors, identity theft, mixed files, reinvestigations, so-called credit repair, debt collection, and other topics.

• Inquiries & their Effect on Your Credit Score
  

  When a consumer seeks credit, the lender will report an inquiry on the consumer's credit reports. When a bank sends out a pre-approved loan application or makes an account review, the bank reports that event as an inquiry. The former inquiries are known as hard inquiries and the latter as soft inquiries.

  Consumers reading their reports worry the inquiries are reducing their credit scores. However, the soft inquiries do not affect credit scores at all and the hard inquiries lower credit scores but not very much.

  For most people, one additional hard inquiry will takes less than five points off the FICO score. Inquiries can have a greater impact if bunched together. A large number of inquiries might mean someone is in trouble financially. However, Fair Isaac, the company that created FICO scoring, now counts multiple auto or mortgage inquiries in any 45-day period as just one inquiry. In addition, the score ignores all inquiries made in the 30 days prior to the scoring according to Evan Hendricks, author of the book, Credit Scores & Credit Reports. Hard inquiries more than 6 months old are not counted at all.

• How to Deal with Zombie Debt
  

  WikiHow, a how-to-manual that you can edit, has excellent advice on dealing with zombie debt-old debts that cannot legally be collected through lawsuits. Companies buy the debt for pennies on the dollar and then use nefarious tactics to get consumers to pay. Tactics include harassing calls, threats to sue, and re-aging the debt (faking the date of last activity on the account) so as to report the debt on the consumer's credit reports.

  WikiHow outlines steps to take and not take. For example, don't acknowledge the debt, do not make a payment on the debt, ask for proof the debt collector was assigned the debt (they may not have any proof), and ascertain if the statute of limitations has run. In California, the consumer has a defense if it has been more than four (4) years since there was activity on the account.

• Credit Bureaus Won't Let You Add Credit History
  

  The NY Daily News reports on an individual who noticed his credit reports did not show all his credit cards. He gathered his credit card documents and sent them to the credit reporting agencies asking them to add them to his credit history with the idea it would improve his credit standing.

  Trans Union wrote back saying no dice. They won't accept credit information from consumers. It has to come from subscribers. A TU spokesman dodged the real issue why not by saying consumers "cannot dispute an item that does not exist on their credit report." Of course, the consumer was not disputing anything. He wanted to update his report.

  The TU spokesman said to contact the creditors and ask them to update TU. Bottom line--the FCRA should be amended to allow consumers to add to their reports. The credit bureaus could check with the creditors to see if it is accurate before accepting it.

• Consumers Who Filed for Bankruptcy Get Help with Old Debts on their Credit Reports
  

  A recent court order in a class action will help millions of consumers who filed bankruptcy but have been plagued with old debts showing up on their credit reports. The old debts, which are typically forgiven by the courts in a bankruptcy filing, are still being reported as active on many consumers' credit reports.

  As reported in the Wall Street Journal, Experian and TransUnion say they have already updated their credit files to be compliant with the court order. TransUnion also sent notices to some customers saying they "may experience a slight change" to their credit scores if any of their accounts are updated because of a bankruptcy.

  Consumers with so-called zombie debt -- old loans they may have paid off years ago that can resurface when an aggressive debt collector erroneously demands payment -- are also likely to get some relief, if those debts also were discharged under Chapter 7 protection.

  In many cases, old debts linger on credit reports if lenders don't update their records, or if collection agencies ignore the fact that debts were discharged in bankruptcy. The credit bureaus' new procedures should ensure that anyone who files for bankruptcy in the future will have more-accurate
  credit reports.

• NY Times Reports on the High Cost of a Free Credit Report
  

  The NY Times reports that Experian is spending $70 million per years advertising its FreeCreditReport.com site where many consumers log on deceived into believing they will get a "free" credit report. For example, one person provided his credit card information thinking it was needed for identification only to find Experian charged him $14.95 a month for a credit-monitoring service.

  The Experian website is not the one site where the credit report is free--that would be www.annualcreditreport.com. In 2005, the FTC sued Experian for deceptive marketing of its FreeCreditReport; Experian paid the FTC a fine of $950,000 settle.

  The Experian credit-monitoring service is almost worthless. Ed Mierzwinski of Public Interest Research Group, refers to the product as a "protection racket." Experian and other credit bureaus with similar products promise to protect consumers against identity theft, but they do no such thing. Neither do the products improve anyone's credit scores.

• Prof Elizabeth Warren Talks About Credit Reporting on NPR's Fresh Air
  

  Last week, Prof Elizabeth Warren talked about credit reporting on the NPR program Fresh Air with Terry Gross. Ms Gross' husband had to hire an attorney to convince the credit bureaus that someone else's bad debts listed on his reports did not belong to him. In response to Ms Gross' questions how the inaccuracies occur and why it is so hard to correct them, Prof Warren said the credit system is "noisy" with, for example, data associated with social security numbers one digit off being attributed to the wrong person. She said the problem is the credit industry has no incentive to drive errors out of the system. Prof Warren said one in four credit reports have errors serious enough to affect the credit score, which increasingly are used by creditors, insurance companies, employers, landlords, utilities, cell phone companies and student loan companies to make pricing decisions.You can listen to the entire interview at www.npr.org.

• Banks Are Increasing Credit Card Rates & Fees and Pushing Lousy Products to Make Up for Mortgage Related Losses
  

  In an interview on NPR's Fresh Air with Terry Gross, Prof Elizabeth Warren warns consumers that banks are increasing interest rates and fees on credit cards for no other reason other than that they need revenue to make up for losses in other lines of their business. The banks reason that in a climate in which credit is harder to obtain, consumers are less likely to close their accounts when hit with these increases and switch to different credit cards. Banks are also adding such "trips and traps" as double cycle billing (you pay interest on recent charges).

  Banks are also pushing credit related products that Prof Warren calls lousy. An example is credit insurance on your credit card, which kicks in if you lose your job. Many buyers will be misled into believing the insurance pays off their balances, but instead the insurance merely pays the interest for six months. At $20 per month on, say a $5,000 balance, this is a bad deal for the consumer.

  Prof Warren is a law professor at the Harvard Law School and a leading critic of banks' predatory lending practices. The interview is available as a podcast on NPR's website, www.npr.org.

• Credit Monitoring Services Are a Waste of Money -- Free Alternatives Are Available
  

  Writing in the San Francisco Chronicle, Kathleen Pender demonstrates that the credi