Taking credit

Starting Wednesday, Hawaii
residents can fight identity theft
by getting free copies of their
credit reports each year

When it comes to credit reports, Wendy Burkholder has seen it all from customers who visit her at Consumer Credit Counseling Service of Hawaii.

There are people who know their credit is in bad shape, people who didn't know their credit was terrible, and those whose credit isn't as bad as they thought. There are also a small number of people whose credit reports contain errors or show evidence of unauthorized use.

Starting Wednesday, Hawaii consumers will have the opportunity to get a better -- and cheaper -- handle on their financial history. A new federal law that goes into effect that day will allow consumers to order a free copy of their credit report.

For more information Consumers can go to a centralized source in three different ways to obtain free reports from credit agencies Equifax, Experian and TransUnion: » Online: www.annualcreditreport.com; » Toll-free telephone call: (877) 322-8228; » Mail: Annual Credit Report Request Service; P.O. Box 105281; Atlanta, Ga., 30348-5281 Other links of interest » "Your Credit Matters" online guide: www.consumersunion.org/ issues/creditmatters.html » www.equifax.com: (800) 685-1111; or Equifax; P.O. Box 740241; Atlanta, Ga. 30374-0241 » www.experian.com: (888) 397-3742; or Experian; P.O. Box 2002; Allen, Texas 75013 » www.transunion.com: (800) 888-4213; or TransUnion; P.O. Box 1000; Chester, Pa. 19022 For complaints about a credit repair service » Better Business Bureau of Hawaii, 536-6956 » State Attorney General, 586-1282 » Federal Trade Commission, (202) 382-4357 or write Federal Trade Commission, CRC-240, Washington, D.C. 20580

The Fair and Accurate Credit Transactions Act, adopted by Congress last year, is being phased in across the country starting with the western states. It allows consumers to request one free copy of their credit report each year from the three major credit bureaus -- Equifax, Experian and TransUnion.

Previously, consumers could obtain free copies of their report only under certain circumstances. Those included being denied for housing, a job, a benefit or entitlement as a result of their credit; being ineligible for a loan on the basis of their credit report; or being a victim of identity theft. Otherwise, if they wanted to look at their report, they had to pay for it.

"I think the new law is very positive," said Burkholder, executive director of Consumer Credit Counseling Service. "People think that there's something mysterious or mystical about their credit report. Yet, it's something that everybody should be akamai about, or sharp about. It shapes your credit future in terms of who's going to be willing to give you credit. You need to know what it looks like before anybody else looks at it."

Consumers can obtain a free copy of their credit reports from all three agencies by contacting a centralized source through the Internet, telephone or mail.

Normally, the credit reports average about $9 apiece. What the consumers won't be able to get for free, though, is their credit score. That will still cost about $6 each.

"If you're a consumer who hasn't seen your credit report in a long time, you're going to want to order your free report from all three agencies at once," said Norma Garcia, senior attorney for Consumers Union's West Coast office in San Francisco. "The idea is to establish a baseline for the future. You want to make sure the information is consistent, complete and accurate across all three reports. If it seems like each agency has substantially the same information, then order just one credit score from one agency."

The credit score is determined by a mathematical formula that takes into account different variables and weights them by proprietary formulas determined by the ratings agencies.

Among some of the factors taken into account are delinquent payments, bill-paying history, how much available credit is being used, credit usage patterns, the length of the credit history and bankruptcies.

Ed Pei, executive vice president for First Hawaiian Bank's consumer banking group, said loan officers follow the "C's" of credit when determining whether to issue a credit card or underwrite a loan. Those include character, which has to do with the willingness of the borrower to pay back his loans and honor his obligations; and capacity, which looks at the ability of the consumer to repay his debt.

"So even though a person has the best character in the world and pays all his debts, it may not be realistic to lend a million dollars to someone who makes $20,000 a year," Pei said.

While character and capacity apply to unsecured loans like credit cards, another "C" -- collateral -- is factored in when determining whether to make a mortgage loan.

"That's when you're taking security in the actual home as part of the loan," Pei said. "If the value of a home is $300,000, we're not going to lend you more than the value of the home. So, if there's a default, we reserve the right to foreclose on the home."

Burkholder said consumers should be wary of companies that offer to "repair" your credit.

"There are agencies that say they can repair credit and that can be sort of a misnomer," Burkholder said. "There is no way to have accurate information removed from your credit report. So, if you have five accounts with collection agencies because you let the bills slide and that information is accurate, they have the right do report that.

"The only way to clear up your report is to repay the debt, and time. As you move further back in history, it becomes less of a factor."

Both Burkholder and Pei say credit agencies' reports tend to be pretty accurate.

However, a study released in June by the U.S. Public Interest Research Group found that one of four credit reports contain errors serious enough to cause consumers to be denied credit, a loan, an apartment or home loan, or even a job.

"The big credit bureaus and big business tolerate big mistakes in credit reports," said Ed Mierzwinski, the group's consumer program director. "But those mistakes ruin the financial reputations of hard-working Americans."

The group's survey, collected from 200 surveys of adults in 30 states, also found that:

» 79 percent of the credit reports contained mistakes of some kind;

» 54 percent of the credit reports contained personal demographic identifying information that was misspelled, long-outdated, belonged to a stranger, or was otherwise incorrect;

» 30 percent of the credit reports contained credit accounts that had been closed by the consumer but incorrectly remained listed as open.

Consumers Union, the nonprofit publisher of Consumer Reports, has put together "Your Credit Matters," an online guide with advice on how to order a credit report, review it for accuracy, and correct possible mistakes.

"Having good credit can mean the difference between paying a high or a low interest rate for a loan, or whether consumers are offered insurance, jobs, or housing," Garcia said.