Credit Reporting Myths That Just Won’t Die

The Credit Bureaus Have Record of Your Income – This is a current myth based on a past truth.  Your credit reports used to have your salary included but they were purged from credit reports almost two decades ago.  Why isn’t your salary on your credit report any longer?  The reason is because the figure is highly suspect for a variety of reasons.  First, who really knows within 5% how much they’re going to make in any given year?  Second, for hourly employees with variable hours you never know your salary until the end of the year.  And lastly, the figure was “consumer stated” and in many cases the figure was incorrect.  Not having the income is better because lenders will rely on the consumer to provide proof of their income if they care enough to ask.

The Credit Bureaus Pay Lenders for Your Information – The credit reporting agencies have a very unique business model.  They get all of the information about you for free, and then they normalize it into a credit file, and then sell it back to the companies who gave it to them for free in the first place.  I recognize they pay for technology, storage, legal, administrative, and other functions but there are no “costs of goods.”  It would be like a homebuilding building you a house without having to buy the wood, nails, bricks, or appliances.  There is tremendous margin in a credit report; especially those sold to consumer for $12.95 a piece.  Remember, these are the same credit reports that are sold to lenders for less than a dollar in some cases.

Credit Reports Contain Criminal Record Information – The Fair Credit Reporting Act allows criminal record information to be a part of any consumer report, but it’s not mandated.  As such, the credit reporting agencies do not currently pick up criminal record information and include it as part of your credit files.  The credit bureaus aren’t forced to accept any information about you.  It’s voluntary, which opens up some problematic areas, such as their willingness to accept less than complete information about your credit card accounts.

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Your Credit Reports Contain Utility Account Information – It’s very uncommon that your public utility payments will be reported to the credit reporting agencies.  I’ve seen some PG&E (Pacific Gas and Electric) accounts reported but that’s about it.  For the most part your payment history with your utility providers goes unreported.  This is, of course, unless you default on your payments and then the utility provider outsources their collection to a 3rd party collection agency, who will most certainly report the collection accounts to the credit bureaus.

There Are Only 3 Credit Bureaus – Not even close.  When we talk about credit bureaus we almost always focus on Equifax, Experian and TransUnion and we refer to them as “The Big 3.”  There are actually more than three companies who store your credit information.  Another credit bureau is Innovis Data Solutions.  They are commonly referred to as the 4th credit bureau.  You can get a copy of your Innovis credit report at their website.  There’s also a company called ChoicePoint that acts as a consumer reporting agency but for the insurance industry rather than the credit industry.  ChoicePoint was formed when Equifax spun off their Insurance Services division many years ago.  Now they are owned by LexisNexis.  You can get a copy of your CLUE (Comprehensive Loss Underwriting Exchange) reports at their website.  There’s also CoreLogic and their new CoreScore report.

The Courts Send Public Record Data to the Credit Bureaus – Tax liens, bankruptcies, and judgments are all forms of public records that can show up on your credit reports.  The question is, “how did that get there?”  The answer isn’t “the courts send it to us.”  In fact, the court system doesn’t send anything to the credit reporting agencies.  The credit reporting agencies have to go and get it.  They get it primarily two ways, through public record vendors and a system called PACER.  And since public records are just that, public, anyone can see them.  The system is fast and efficient and if you think your bankruptcy is going to get overlooked you have another thing coming.  You can time the reporting of a newly filed bankruptcy on an egg timer.

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You Have to Remind the Credit Bureaus to Remove Negative Data After 7 to 10 Years – Thankfully this isn’t the case.  Almost all negative credit reporting must cease after 7 to 10 years, depending on the item in question.  Collections, judgments, repossessions, foreclosures, late payments, and charge offs can’t be reported in a normal credit report for more than 7 years.  Bankruptcies will almost always remain for a full 10 years and unpaid tax liens (7 years from the date paid) and unpaid defaulted student loans can stay on even longer.  The good news is that the removal of these items is done based on a timer that’s associated with the dates of the offensive item.  You don’t have to call the credit bureaus and remind them to remove the items unless there’s an improperly reported date on the account.

The Credit Bureaus Grant or Deny Credit – This is one of my favorite credit myths and I know exactly where it comes from.  When you receive a denial letter (called a “notice of adverse action”) in the mail the lender must disclose where they got the credit data.  And because almost all adverse actions are based on either a credit report or a credit score they almost all have the name of one or more of the credit bureaus.  This gives the impression that they were somehow involved with the denial of credit when in fact all they did was to provide the credit report or the credit score.  We may want to blame a lot of things on the credit bureaus, but we can’t blame our denials on them unless the credit report contained errors serious enough to cause said denials.