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For home buyers, a faulty credit report can stand in the way of getting that dream house.
But newly passed federal credit rules are aimed at providing consumers with easier access to their credit information and at curbing inaccurate reports.
President Bush last month signed into law a measure that reauthorizes and expands the Fair Credit Reporting Act, which regulates how banks and other financial institutions share consumer financial data. Some experts say that law will provide needed benefits to consumers by making it easier to access credit or obtain better deals on mortgages.
"All of these protections are designed to ensure that consumers are not negatively impacted by incorrect
credit data and can benefit from better mortgage or credit rates," said Richard Roll, president of the
American Homeowners Association.
Credit reports, which are managed by credit-reporting agencies, are a key reference tool that lenders rely on when deciding to loan money or extend a line of credit. They contain information on where a consumer lives, where he or she is employed and payment history. It also contains publicly held information, including whether an individual has been sued or has filed for bankruptcy.
Inaccurate credit reports can cost home buyers real money in the form of higher interest rates for
mortgage loans. And in some instances, consumers with error-laden credit histories can be denied certain
financial services.
Key provisions of the new law, known as the Fair and Accurate Transactions Act, are designed to help
consumers guard against financial crimes such as identity theft, which occurs when a thief steals social
security numbers and other private information to obtain fraudulent loans or credit cards.
Identity theft remains the fastest growing crime in America, according to the Federal Trade Commission.
It accounted for more than 40 percent of the complaints lodged with the consumer protection agency in 2002.
Victims often discover that their information has been stolen after thieves run up huge debts, and the
damage can last for years. The Texas Public Interest Research Group estimated that individuals spend about 175 hours and pay $800 on average to repair credit histories.
A major goal of the measure is to make sure that consumers see their credit information regularly.
Under the new law, consumers can obtain a free copy of their report each year from the three major
credit-reporting agencies: Equifax, Experian and TransUnion. Currently, those agencies each provide copies of
basic credit reports for about $9.
Also because of new provisions, errors found on those reports can be submitted to one agency instead of
calling all three. And consumers can place "fraud alerts" in their credit file to prevent further damage by ID thieves.
"If there is a proliferation of inaccurate information on credit reports that occurs because of,
among other things, an increase in the incidence of identity theft, then people are inhibited from entering
into transactions," Roll said.
Roll said under the new rules, consumers will be able to see significant contents of their credit reports
and can enjoy a simpler mechanism for reporting errors or inaccuracies to the credit-reporting agencies.
And the process of reviewing credit information will help consumers become aware of what behaviors actually raise or lower their credit scores, Roll said.
"People think if they pay off all their credit card, that improves their credit scores . . . and that's
not always the case," he said.
But Robert Schneider, an attorney with Consumers Union, a consumer advocacy group, argues that the benefits are not so widespread.
"It's not that consumers have these dramatic new rights with the exception of getting a free credit
report every year," he said. "Really, it's more about incremental improvements (to credit reporting) and
making sure the information is accurate."
Despite the push to aid consumers, Schneider said not all credit information would be freely accessible.
Consumers still must pay a yet-to-be-determined fee to see their credit scores. Information pertaining to how
credit scores are calculated would not be included in the free reports, he said.
Scott Duncan, a spokesman for the House Financial Services Committee, which oversaw the passage of the
measure, said that when individuals pay for their credit scores, they also will receive information on how to improve their ratings.
Schneider also said that notifying consumers that their interest rates are affected would encourage them
take steps to check their credit information and verify that the data are correct. That move, in turn, could
help consumers obtain better rates.
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