Joan in Wisconsin recently had trouble getting a loan because of mistakes in her credit report. She's wondering: Just what gives credit agencies the right to collect files on us anyway? John in Colorado is sifting through the options and trying to figure out the "best" way to invest.
Recently, my husband and I applied for a mortgage and a credit check was run for both of us. … My husband's credit score came back low from two of the bureaus and interfered with our ability to process the mortgage. The problem is that all the debt (thousands of dollars of medical bills) that was lowering his score was not his! It was another person's who had the same first and last name, and had lived in the same state. … Why should I have to go through a written appeal process to fix an error that they themselves committed? Who gives credit bureaus power to apply debts against your credit score without having to inform you that they have done it?
-- Joan, Wisconsin
Credit agencies have to tell you what’s in your report -– for free -- though you have to ask for a copy of these reports. After years of forcing people to pay to see their own information, Congress finally got around to passing a law two years ago requiring that they disclose this free -- once a year, upon request. To get your copies, go to AnnualCreditReport.com
And under the Federal Fair Credit Reporting Act, if a credit card or mortgage company denies you a loan because of adverse credit report, they’re required to tell who where that report came from –- called a “notice of adverse action.”
As for who gave credit agencies the right to gather this information, in some cases, you did -– by signing the account “agreements” with financial services companies you do business with. These are contracts, enforceable like any other, which is why you should read them carefully before you signing –- no matter what verbal assurances you may be getting. The rules governing the collection of personal data go all the way back to the original Fair Credit Reporting Act of 1970, which has since been amended more than a dozen times.
The process of gathering information on potential borrowers is as old as lending itself. Before a lender gives you money -– or extends credit on a card -- they have a legitimate right to determine the likelihood that you’ll pay it back. In the old days, this was done face to face -- or at least one customer at a time. (The process wasn’t free of abuse, but it was easier to control access to the information.)
Fast forward to the modern information age, when all this is done by nameless, faceless software systems "analyzing" information that is ultimately collected and assembled by fallible human beings. One slip of the keyboard, as you've discovered, can provide that lender with the wrong information. Or turn correct information over to people who have no legitimate right to see it. Until such slip-ups carry more severe penalties, you can count on them happening again. In fact, credit bureaus currently are protected against lawsuits for damages that result from their mistakes.
Alas, the same data collection process is happening in all facets of our lives -- the price we pay for living in an information age. If you have any doubts about the level of detailed data that's out there, just put your name in Google’s search field and see what comes back. If you'd like to go a little further, spend $15 on one of the many "background check" services out there. You'll probably be surprised -- if not shocked -- at what you find.
There are some signs that the laws governing information privacy are catching up with the realities of the modern world of identity theft and warrantless wiretaps. For example, Congress has passed a comprehensive law limiting access to medical information, though the law has some significant loopholes.
But there’s still plenty of work to be done. When you sign up for a cellphone, you don’t expect to leave an electronic trail of your whereabouts -– but that information is available. The recent disclosures that the government collects records of domestic phone calls has renewed debate about privacy limits, and the new Congress may take a different view than the current session.
There are several groups, including the Privacy Rights Clearinghouse and the Electronic Privacy Information Center, that are trying to contain the spread of this information and maintain the level of privacy that most Americans (erroneously) assume they enjoy. We're all for it. The burden should be on the collectors of data -- not us -- as to why they need it. Those working to protect and restrict the use of personal information have had some victories, and the game isn't over. But without stricter limits, the idea of privacy seems to be going the way of the punch card.
There are so many articles, advice and commentary as how to invest. Is it possible that the idea of a simple investment plan can be true? I have always heard that index funds are the best way. Then you hear that XYZ management has beat the market forever. Finally you should pick only the best growth stocks on your own. What is the real plan to look at?
-- John H.Centennial, Colo.
You really do have to find your own path -– there’s no “best” way. Everyone is different: how much risk we can handle, how much time we want to spend learning about investing and checking out each investment, how big a return we're happy with, etc.
The hard part is trying to figure out if you're doing the best you can -- or if there's a better way for your particular circumstances. Reliable information on that score is hard to come by. There's always some brother-in-law who thinks he knows a better way. Information offered up by "professionals" -- who are trying to sell you on a particular investment -- isn't much better.
Much of what passes for independent “analysis” from Wall Street is, in fact, a very sophisticated sales pitch. But for some reason, most people feel more comfortable asking tough questions about the details of, say, a brake job, than they do about the make-up and fees charged by a mutual fund someone is trying to sell them.
Generally speaking, the higher returns require higher risk. If you're looking for a sure thing, stick with Treasury bonds. If you're okay with the idea you may lose money, stocks have historically produced a higher return.
For stock investors, index funds do have some advantages -- especially for people who don't want to research each investment. (Picking the best growth stocks is a great way to invest; the problem is you've got to spend a lot of time find the growth stocks that everyone else has overlooked before they get expensive.)
Even mutual funds -- another simple way to get started -- come with a major risk that advisers often overlook: "management risk." That's the risk that the person managing your money will lose it -- or at least not keep up with the market averages. It's also true that very few managers beat the market year after year: most winning streaks eventually come to an end. (Past performance, as Wall Street relentlessly reminds us, is no guarantee of future results.)
It turns out that, on average, more money managers fall behind the market average than beat it. True, for every manager that lags the overall market, there should be one that does better than average. But after you subtract the fees both under- and over-performing managers charge, the average managed return is less than the benchmark index for that type of investment. It's not unlike a casino: After the house takes its cut, not all the money lost by the losers is paid to the winners.
That's the basic idea behind index funds: Since you've got a less than 50-50 chance of beating the market in a managed account, you may as well just buy the index. And because it's not actively managed (no stock-picking involved), fees for index funds are substantially lower.
And that's another reason you won't hear index funds talked up by brokers and money managers. If we all invested that way, they'd be out of a job.
Why do media people always refer to Michigan as: the "Midwest," when we are in the Mideast quadrant of the country?
-- Gary C., Paw Paw, Mich.
Because it has may more ties with the Midwest – historical, cultural, economic, political, etc. – than it does with the Northeast or Middle Atlantic region.
The word "Mideast" is also widely used to refer to the region between Europe, Africa, and Asia. So applying it to a region of the U.S. would inevitably invite confusion.