Your credit reports can have a profound effect on your financial life.
But what if your file doesn’t tell the whole story? Myriad life issues, billing snafus and identity theft can leave your credit with dents that you believe aren’t your fault.
“People sometimes get really emotional about their credit report,” says Thomas Nitzsche, a credit counselor and financial educator with ClearPoint Credit Counseling. “They see it as a personal reflection of themselves.”
Fortunately, the Fair Credit Reporting Act allows you to amend all three bureaus’ reports with a personal statement that tells your side of the story. The question is: Is that a good idea?
What is a personal statement?
It’s a brief addendum to your credit report that provides extra information about anything listed in your report. You’re limited to 100 words in most cases.
For each of the credit bureaus’ specific policies (including how to add a statement and how long it remains on your report), use our chart below.
Some creditors may care, some won’t
Before putting time into crafting your statement, know that some lenders won’t even see it.
“It really depends on the individual lender and the particular type of product, and on the consumer in some cases,” says American Bankers Association spokeswoman Nessa Feddis.
For example, if a lender uses credit scores as a means to weed out applicants, it might go no further than that three-digit number. However, if your score is on the border of what is acceptable, a lender may take a closer look at your report, Feddis says.
The type of credit you’re applying for also may play a role, says Nitzsche. Applying for a card online with a national bank? No human is likely reading your statement. A mortgage application, meanwhile, more likely warrants a deeper dive into your credit and a manual review, during which your personal statement may be seen and considered.
The bottom line: A personal statement, no matter how well it’s written, won’t change your credit score, and that’s all some creditors care about.
“But what we do find is that it can be kind of a psychological aid for consumers,” Nitzsche says. “They feel like they’ve been put in an impossible financial situation, and they need a formal place to get that out.”
When to skip the statement
You might think you’re firmly in the right in an unfair situation, but it’s vital to consider how a lender will view your attempts to explain that.
“It’s not an excuse section,” Nitzsche says.
With that in mind, nix the personal statement in these circumstances:
- It’s really your fault: Nitzsche says he once charged a $27 pair of jeans on a store card and moved soon after. A mail-forwarding hitch meant he didn’t get the bill, and the issuer reported the payment as 30 days late to the credit bureaus.
“It was aggravating because it was so stupid,” he says. “But the fact of the matter was, it wasn’t the fault of the creditor or postal service. It was my responsibility to proactively make sure the creditor had my correct address and, even though I didn’t get the statement, remember I made that charge.”
- The ding is old and minor: Another reason to avoid writing a statement about that $27 pair of jeans: You don’t want to set off an alarm about such an insignificant mess-up.
An old delinquency will have less of an effect on your credit score, but a statement will stick around (for exactly how long, see the chart below), drawing a lender’s attention.
“They might think, ‘What else is there?’ ” Nitzsche says. “That might raise a red flag that you’ve had issues in the past and are a little flaky. If it’s an old debt or a minor thing, especially if it’s not anybody’s fault but your own, just let it slide.”
When to consider writing a statement
A statement might help if it fits the following qualifications:
- It was a one-time medical issue: Collection accounts stemming from medical debt carry less weight in newer credit scoring models, and lenders may be more lenient about them as well.
“They recognize there might be other issues around that debt,” Feddis says. Insurance issues and long recovery times, for example, may mean a bill goes into collections before the consumer has a chance to pay. A May 2014 report from the Consumer Financial Protection Bureau presents more reasons why medical collection accounts don’t necessarily make a consumer a bad risk.
Even so, be careful how you phrase any personal statement regarding medical debts. If it’s tied to a one-time freak accident that has long since been resolved, say so. If it’s tied to a chronic issue, think twice.
“Whoever’s manually reviewing your report could arrive at the assumption that you have an ongoing issue that could affect your finances continually,” Nitzsche says.
- You’re dealing with errors and ID theft: Removing incorrect information from your credit reports can take time. If you must apply for a loan before you’ve cleared off all the errors, a personal statement can help explain the situation to a lender.
Yet even more important than the statement is making sure you have documentation to present the lender, Nitzsche says. That might include any paperwork you’ve filed with the credit bureaus or the police report if you’re dealing with ID theft.
“That way you can say to the lender, ‘There’s a problem on my report. I put a statement on it, and here’s all the documentation to back it up,'” Nitzsche says.
In the case of truly stubborn errors, don’t put all your effort into the statement and stop there, Nitzsche says – save some for actually getting the errors removed. Go straight to the source (the institution reporting the incorrect information to the bureaus) and try an executive complaint to expedite your issue. Or complain to the Consumer Financial Protection Bureau.
Decided writing a statement is the best route? Follow these tips:
- Keep it short: You don’t have to use the 100 words allotted, and maybe you shouldn’t.
“It is important to be precise and to the point,” wrote Clifton O’Neal, vice president of corporate communications for TransUnion, in an email. “For example, ‘Past due payments on Chase account was due to unemployment from 5/11 to 8/12.’ ”
- Be factual: This is not a time for emotional appeals, an angry tone or criticisms of your lending institution.
“Facts are best, and if they show it’s not something that was your fault, that’s the ideal situation,” Nitzsche says.
Better than a well-written statement, though, is a clean credit report. Pull your reports often so that you have plenty of time to fix errors before you need credit.
“We see this a lot,” Nitzsche says. “People will come to us, they need a loan right now, and they haven’t paid any attention to their credit, never pulled their credit report. So be aware of what’s on your report. Make healthy choices to try to keep it clean, so when you do need it, it’s ready to go.”
Credit bureaus’ policies
|How to add a statement to your credit reports: The bureaus' policies|
|Options for submitting your statement||Send to:|
P.O. Box 2000
Chester, PA 19022
|Mail (instructions will be on your credit report), phone, or online||Online or mail to:
Equifax Consumer Services LLC
PO Box 740256
Atlanta, Georgia. 30374-0256
|Max number of words/statements||1 statement; 100 words||Allows multiple statements of 100 words each. One general statement (that applies to whole report) and one statement per item on the report. Can submit up to 10 online, more via phone.||1 statement; 100 words (200 if you reside in Maine).|
|How long statement will remain on report||Until consumer requests deletion||Until account statement is tied to is deleted (seven years from original date of delinquency) OR upon consumer's request||Seven years, or at the customer's request, which must be sent to the address above.|