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Consumer Law

Credit reports, debt collector, bad debt, identity theft

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Credit Reports & Credit Scores

What is a credit report?

A credit report is a record of how well you pay you've paid your bills over the last 7 years.  In simple term it can be thought of as a report card about how well you pay your bills. This report is maintained by three private credit reporting companies named Equifax, Experian, and Transunion.  An entry on your credit report is made anytime you create a debt.  When you turned 18, you began to create debts in your name which were then recorded on your credit report.  A credit report usually provides information about three types of debts: open debts in good standing, closed debts in good standing, and delinquent debts. 

Example: You borrowed $5000 in financial aid to attend college.  A $5000 debt obligation was reported to Equifax, Experian, and Transunion.  This debt is listed on your credit report as an open debt in good standing.

Example: You graduate college and begin to repay your $5000 loan.  You miss two payments.  This debt's designation will be changed from "open in good standing" to a "delinquent debt".

 

What is the difference between a credit SCORE and a credit REPORT?

If the credit report is a report card about how well you pay your bills, your credit score can be thought as your final GPA.  This credit GPA score will be used by businesses to determine if you should be accepted for car loans, credit card applications, home loans, etc.  Just like a high GPA made it easier for you to be accepted into college and receive scholarships, a high credit score will make it easier for you to obtain loans and financing for items that you want to purchase in the future.   The types of debts on your credit report are each weighted differently and can positively or negatively impact your credit score.  Open debts in good standing and closed debts in good standing will positively affect your score while delinquent debts will bring it down.  Just like a single bad exam can dramatically change your high GPA, a single delinquent debt can dramatically lower your credit score.  It may take 5 positive debts to correct the negative effects of a single delinquent debt.

A credit score ranges from 350-850.  An average score is between 600-700.  This can be thought of a B+ credit GPA and will qualify you for most purchases, but not necessarily on the best terms.  A credit score below 550 is considered too risky by most companies and can make it challenging for someone to buy a car or get a credit card.  Credit scores above 700 are considered great and usually qualify the person for the lowest interest rates and best repayment terms.  Just like a straight-A student gets into a better college with a full scholarship, a person with a high credit score can get the best loan for the cheapest price.

 

How is my credit score calculated?

The real answer is that no one is completely certain.  Each private credit reporting agency uses its own mathematical calculations to create a credit score.  This score will vary from one reporting agency to another.  Example: Transunion's mathematical calculation may put more importance on credit card debt than Equifax's mathematical calculation.  As a result, a person will lots of credit card debt may have a lower credit score with Transunion than with Equifax. 

As a general rule, new debts are more important than old debts and bad debts harm your score more than a positive debt will improve it.  This means that finally paying off a car loan that you've had for five years will not improve your score very much (ex: increase it by 5 points) but missing a payment last month on your new credit card company may harm your score dramatically (ex: decrease it by 50 points).

 

When could my credit score help or hurt me?

Anytime you apply for credit or attempt to create a debt, the lender or creditor will pull your credit report and/or look at your credit score to decide if they want to loan you money or extend you credit. 

Example: An apartment complex uses credit scores to decide if they should let you rent an apartment.  A negative credit report or low credit score may result in you being denied a lease and/or being required to have a guarantor.  An apartment owner does not want to let someone move in who has a history of paying their bills late or breaking leases.

Example: A car dealership will look at your credit score to determine if they should sell you a car.  A person with a very low credit score may be considered too risky because they have not proven that they can repay their bills on time and the dealership does not want to have to repossess a used car 9 months after it's been sold.  A dealership may only be willing to loan you money if you agree to pay a very high interest rate so that the dealer can earn lots of money on your risky loan. 

 

Where can I get a free copy of my credit reports?

The federal government requires all three credit reporting agencies to give you a FREE copy of your report every year.  You can download the copies online at annualcreditreport.com.  

This is NOT the same website as Freecreditreport.com.  That is a for-profit website owned by Experian which offers a free copy with purchase of an identity protection plan.  A truly free copy of the same information can be obtained on the federal government's website @ annualcreditreport.com

You do not have the right to a free copy of your credit score, but you can purchase your score from each company's website.

Equifax - http://www.equifax.com/home/en_us

Transunion - http://www.transunion.com/

Experian - http://www.experian.com/

 

Unpaid Debts - What Happens If I Never Pay?

What could happen if I don't pay my debts?

You can be sued, any secured items could be repossessed, and your credit report will state for seven years that you failed to pay a debt.  If your debts had cosigners or guarantors, the cosigner and/or guarantor can also be sued and have their credit reports damaged. Your damaged credit report will result in a lower credit score and you are likely to have significant trouble renting a new apartment and/or receiving credit for new purchases like a car or credit card.  In certain circumstances, you could also be denied employment and career opportunities because of a bad credit history.  Ex: A bank will not hire someone to be cashier/teller if they have a negative credit history.  The bank will be too concerned that the teller may steal money if/when they get behind on their bills.

 

Can a creditor ever take my money from my bank account or paycheck?

Yes, but ONLY if it's for child support, unpaid taxes, or student loans.  A creditor seeking money for any other type of debt (credit cards, apartment leases, payday loans, etc.) cannot take money from you.  They can only call and write you asking for payments.  If you want them to stop calling and writing, you can write them a letter and tell them to stop. (Click HERE for a copy of a letter you can use.)  They cannot contact you again except to notify you if they are filing a lawsuit.  If they file a lawsuit, they can be given an official piece of paper from a judge that says you owe money.  That's it.  There is no way for the debt collector to take money from your account or paycheck UNLESS it's for child support payments or delinquent taxes.  A creditor with a secured debt like a car loan or home loan can repossess the vehicle or house, but they cannot take money from your bank account or paycheck.

 

Can my family or friends ever be forced to pay off my debts?

Yes, but ONLY if they have signed a cosigner or guaranty agreement on the debt.  Parents, siblings and children are never responsible for your debts unless they sign a piece of paper agreeing to do so.

 

What is debt consolidation?

It's often a scam.  Many debt consolidation or credit relief agencies do not offer any legitimate services for people needing help.  A common scenario requires the person to start sending money to the debt consolidator who promises to renegotiate with the creditors and get lower monthly payments for the debtor.  The problem with this is that the creditors DO NOT have to negotiate with the debt consolidation company; a bankruptcy court has legal authority and the creditors MUST respond; a debt consolidator is a private company with no authority whatsoever.  Do not spend any money on a debt consolidation until you've verified with the Texas Attorney General's office that they are a legitimate company with a proven track record of handling consumer issues.  Check the AG's site HERE.

 

Identity Theft

How can I prevent my identity from being stolen?

  • Secure your belongings at all times.
  • Do not give financial account or other personal information to an unknown person who contacts you.
  • Do not utilize a mailbox that cannot be locked. If your home/apartment does not have a locking mailbox, rent a post office box instead.
  • Do not use your birth date or other easily deciphered codes as passwords.
  • Do not have your driver's license number, birth date, or social security number pre-printed on your personal checks.
  • Shred all documents containing personal information.
  • Obtain copies of your credit reports at least once a year.

What should I do if my identity is stolen?

  1. Contact the three major credit reporting bureaus, notify them of the situation, and ask that they place “fraud alerts” on your accounts. You should also order copies of your credit reports to assess whatever damage has occurred.
  2. Contact the financial institutions affected by the fraud and notify them of the situation. You should fully cooperate with any investigation they may conduct into the matter.
  3. File a complaint with the Federal Trade Commission at http://www.ftc.gov/bcp/edu/microsites/idtheft
  4. Contact your local police department to file a report.

Where can I get more help?

Federal Trade Commission
This website is a one-stop national resource to learn about the crime of identity theft. It provides detailed information to help you deter, detect, and defend against identity theft. 

Identity Theft Resource Center
Provides enterprise consulting and outsourced services related to information breach, fraud and identity theft.

Social Security Administration
Get a new or replace a Social Security Card, apply for benefits, etc.

Bankruptcy

What is bankruptcy?

Bankruptcy is a legal proceeding available to both individuals and companies who owe more money than they can afford to repay.  The ability for someone to find relief from debt dates back to Roman times and was carefully planned for in the United States by our founding fathers.  Article 1, Section 8 of the United States Constitution grants the federal government power to regulate and routinize bankruptcy filings in all states and territories.  There are different types of bankruptcy and each provides the debtor with different types of relief.  The two most common types of personal bankruptcy are called Chapter 7 and Chapter 13. 

A Chapter 7 bankruptcy proceeding is one where the debtor says they cannot afford to pay back any of their debts and wish to have all secured properties repossessed or sold to pay off debts.  A judge determines what items the debtor may keep and what debts can be eliminated.  The government does not require a person filing Chapter 7 to sell or give away all of their personal possessions.  Rather, the government recommends that you keep your clothing, home furnishings, wedding rings, pets, and even a personal vehicle or home if paid for.  Medical bills, delinquent payday loans, credit card bills, and similar unsecured debts are usually eliminated in a Chapter 7.  Secured debts like a car loan or rent-to-own agreement for furniture are often settled by having the items returned.   The only types of debt that are not usually eliminated are debts for child support payments, income tax, and student loans.  A person must show a complete inability to EVER pay off a student loan before the court will eliminate the debt.  This is extremely hard to do and usually only happens when a person has been injured or harmed in a way that prevents them from ever working.  

Ex: A normal person took out $75,000 in student loans to attend medical school.  They graduated and got a job as a doctor.  Unfortunately, they suffered a massive brain injury in car crash and can no longer care for themself.  That person will NEVER be able to earn a living as a doctor and therefore is unlikely to EVER be able to repay their student loans.

A Chapter 13 bankruptcy is one in which the person says they can afford to pay most of their bills, but not all of them or maybe not all of them at the same time.  This is often called a "reorganization" or "restructuring of debt" because it may only change the order in which bills are paid but not eliminate them. 

Ex: A normal person borrowed $75,000 to attend medical school.  They graduated and got a job as a doctor.  Unfortunately, they suffered severe injuries to their legs in a car crash.  The person was unable to work for over 12 months while they attended physical therapy and learned to walk again.  This caused the person to fall behind on their student loan, home loan, and credit card bills.  A Chapter 13 restructuring allowed the person to extend their repayment plan by 2 years, reduce their minimum monthly bills by $400, reduce some of the medical bills, and to eliminate the credit card entirely.  Now this person can pay back their student loans and keep their home.  They will still pay back all $75,000 in student loans but they are given 2 extra years to do so.

 

Is bankruptcy a good thing or a bad thing?

It can be both.  It's a good thing because it may finally give a person relief from credit collections and stress; it's a bad thing because it will hurt that person's credit and pull down their credit score for 10 years.  It may or may not give the person the type of relief they were seeking.  If the person wants to keep their house but could not afford to do so, a bankruptcy will not give them the type of relief they wanted.  However, that same person may not be able to keep their home in any situation and filing bankruptcy can at least stop collection calls and help them get out of ridiculous loan fees.  If you are considering filing bankruptcy, please speak with an attorney or credit counselor at your local bank BEFORE taking any legal actions. 

 

Where can I get information about filing bankruptcy in Texas?

Every state has multiple bankruptcy courts categorized by location.  San Marcos, Austin, and San Antonio are part of the Western District.  Get information about filing procedures and costs on its website @ http://www.txwb.uscourts.gov/

Deceptive Trade Practices Act