Several years ago, a conversation about credit ratings prompted a friendly argument with an acquaintance. My friend, an idealist who hated seeing how the rich and powerful took advantage of those with lower incomes, argued that credit was a force for exploitation.
While I’ve certainly seen exploitative lending practices–I’ve been a financial writer for 15 years, after all–it’s equally clear that credit is necessary for ordinary people to get ahead. Without access to credit, things like home ownership would never be possible for anyone who wasn’t already rich.
Of course, my friend’s point also stands. Lending can often be exploitative, leading to cycles of debt and entrenched poverty. But we live in a world where having a credit score is just about mandatory. Since we can’t opt out of this wildly imperfect system, the best thing we can do is understand its pitfalls and potential benefits–and minimize the harm it does.
Busybodies from the start: The history of credit bureaus
Credit reporting got its start in the 19th century when retailers would share financial information with each other about their customers. If you’ve ever seen small retailers post photos of customers who are not allowed to pay by check, you can understand how this kind of sharing of information could be a helpful tool for protecting a narrow profit margin.
Unfortunately, early credit reporting also had quite a bit of prejudice built in. By the 1960s, credit reporting agencies not only reported financial information, but also any “lifestyles” or conduct that could be gleaned from newspapers or other public sources. This meant individuals were being denied financial opportunities based on their sexual orientation, alcohol use, or any other behaviors that may have put them in the public eye.
What was even more infuriating was that these credit reporting agencies were not required to disclose the confidential information they had gathered about each individual. So if you were denied a mortgage or a job because of what was in your credit files, you had no right to see what was blocking you from the opportunity.
Privacy, please: The Fair Credit Reporting Act
To rectify the opacity of early 20th century credit reporting, Congress passed the Fair Credit Reporting Act (FCRA) in 1970. The FCRA was the first official data privacy law, and through years of tweaking, the law has granted the following rights to consumers regarding their credit reports:
- You have the right to receive a free copy of your credit report
- You have the right to receive notification if you are denied credit or employment based on information in your credit report
- You have to the right to dispute errors on your credit report
- The credit bureaus must investigate such disputes and correct inaccurate information within 30 days
- The credit bureaus must remove outdated information on your credit report after a certain length of time–typically seven to ten years
- The credit bureaus can be held liable for knowingly reporting inaccurate or outdated information
- An employer must get written permission from you before accessing your credit report
- You have the right to freeze your credit
- The credit bureaus must give you the option to exclude yourself from lists for unsolicited insurance and credit offers
The FCRA is an elegant piece of legislation that has grown with the changes to the credit reporting industry. It offers consumers a number of vital privacy protections and rights that we take for granted today. (Credit bureaus of yore used to look at marriages and arrests rather than your verifiable financial behavior, which is much more likely to correlate with your likelihood of paying back a loan.)
That said, these rights still put the onus on the consumer to assert them. You must still work against the giant machinery that is the credit reporting industry if there is a problem with your credit report. And unfortunately, that is more likely to happen than not.
Incompetent stalkers: Equifax, Experian, and TransUnion
The three largest credit bureaus in the United States are Equifax, Experian, and TransUnion. Each of these ginormous companies have a file on any consumer with a digital financial presence. In other words, if you’ve ever used a credit card, debit card, online payment system, digital payment system, or any other non-cash method of payment, then you’re probably in a file somewhere in one of these company’s vaults.
The credit bureaus gather information about you from any financial institution you may interact with, including your bank, credit card issuer, mortgage lender, loan servicer, credit union, or collection agency.
This may not exactly be stalker-like behavior–but it does feel weird that our economy is reliant on third party companies gathering financial intel about consumers without their consent. Like, why are you so obsessed with us?
You’d think that the credit bureaus would at least get the facts right if they’re going to invade consumers’ financial privacy. But in 2024, a Consumer Reports study found that 44% of consumers had an error on their credit report. What’s more worrisome, 27% of respondents found a financial error that would affect their ability to qualify for a loan.
Sure, we have the right to dispute these errors. But the dispute process is a pain the neck none of us wants to take on–and an insulting cherry on top of the creepy stalker sundae.
Exercise your credit rights
The credit industry in America reminds me of Winston Churchill’s words about government: “Democracy is the worst form of government except for all those other forms that have been tried.”
The way we have set up credit in America is intrusive and potentially predatory and puts the onus on the consumer when the giant credit bureaus have institutional power. But it’s better than any other alternatives that have been tried–because of the legislation that protects our rights as consumers. Which means we should all be exercising those rights as early and as often as possible. It’s good for us!
So even though looking at your credit report sounds about as fun as stabbing yourself in the eye with a rusty spoon, consider the following credit-related tasks as an all-American to-do list that will simultaneously protect your finances. (No need to tackle all these in one go. Take your time with your patriotic chores).
Request your credit report
You used to only be allowed one peek at your report per year, but you can now get a weekly online report from each of the three major credit bureaus.
But the old system is preserved in the name of the only official site where you can request your credit report for free as required by federal law: annualcreditreport.com
Remember, there are three credit bureaus, and you need to look at the credit reports from each one. While the information is usually about the same, there can be some discrepancies, and it’s important to know what differences may lurk between your credit reports.
Dispute any errors you find
Unfortunately, there’s a good chance you’ll find something inaccurate in one or more of your credit reports. There are a number of common errors, including:
- Typos, like incorrect addresses, phone numbers, or misspelled names
- Mistaken identity, where someone with a similar name was misidentified as you
- Identity theft
- Incorrect account reporting, like an open account listed as closed or vice versa
- Incorrect account ownership, where an authorized person is listed as an account owner
- Wrong dates for last payment, date of account opening, or date of first delinquency
- Errors in reporting an account as delinquent
- Same debts listed more than once
- Data management errors, like an account with an incorrect current balance or credit limit
If you find an error, you need to dispute it with the specific credit bureau the error appears on. Here’s how to file disputes with each of the three credit bureaus:
Equifax: equifax.com/personal/credit-report-services/credit-dispute/
Experian: experian.com/help/dispute-credit/
TransUnion: transunion.com/credit-disputes/dispute-your-credit
Under Federal law, the credit bureau must investigate and correct the error within 30 days.
Freeze your credit
Freezing your credit is one of the most useful credit rights in the modern world. When your credit is frozen, no one–not even you–can open new credit accounts in your name. Which means that even if identity thieves get hold of your identifying information, they can’t do a darn thing with it.
A credit freeze lasts indefinitely, so there’s no need to remember to renew, although you will need to “thaw” it the next time you want to open a new line of credit. To freeze your credit with each of the bureaus, simply navigate to their websites and follow the prompts:
Equifax: equifax.com/personal/credit-report-services
Experian: experian.com/help
Transunion: transunion.com/credit-help
Opt out of unsolicited insurance and credit offers
The FCRA gives consumers the right to opt out of unsolicited offers for insurance and credit. If you’d like to exercise that right (and why not?!), navigate to optoutprescreen.com and follow the instructions to stop the phone calls and mail solicitations–and enjoy the peace that ensues.
Always look on the bright side of credit
As infuriating as our credit system may be, we still have power and rights as consumers. Exercising those rights will ensure that we keep that power.