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Free credit reports may reveal surprises

Sylvia Gallow-Vazquez was shocked earlier this year when she applied for a Discover credit card and was denied because of poor credit history. Her credit had been impeccable. She had never been denied a loan before. And she had never even been late on her bills, as far as she could remember.

Sylvia Gallow-Vazquez was shocked earlier this year when she applied for a Discover credit card and was denied because of poor credit history. Her credit had been impeccable. She had never been denied a loan before. And she had never even been late on her bills, as far as she could remember.

The Tempe, Ariz. resident was hoping to use the card, which promised zero percent interest for 6 months, to pay for night school.  But the denial put a hitch in her plans, and launched her into the maddening world of identity theft and credit reporting.

That kind of surprise credit denial is precisely the motivation for Congressionally-mandated free credit reports, which become available to some consumers beginning Wednesday at  Federal law signed by President Bush last December required the nation's three credit bureaus to give consumers free access once a year to their credit report, an essential history of personal loans and other economic activity that's used by banks and other institutions to make lending decisions. Consumers are entitled to a free report once a year from each of three main agencies: Equifax, Experian and Trans Union.

Gallow-Vazquez's rejection notice from Discover was vague, indicating there were problems on her credit report. When she called Discover, she was told to contact credit reporting agencies and get a copy of her credit report.

When she did, she found herself stuck in the middle of an all-too-typical American consumer nightmare. The report was pock-marked with unpaid utility bills and loans, all taken out in Gallow-Vazquez's name by an imposter. There were even repeated attempts to buys cars and houses in her name.  For almost two years, someone had been signing up for telephone, Internet, and electricity services, using her personal information. And now, she was left to clean up the mess. Without checking her credit report, she would never have known there was a problem.

"You still feel so vulnerable and so unprotected," Gallow-Vazquez, a Mexican immigrant who moved to Tempe 15 years ago, said. "It was a terrible feeling."

Important new consumer right
According to the Federal Trade Commission, 27 million Americans have been victims of identity theft in the past 5 years. Advocacy groups say it takes an average of one year before a victim discovers the problem. And almost always, the problem is revealed when consumers order a copy of the credit report -- usually after a surprising credit denial. The swelling crisis led to a slate of new consumer rights passed into law last December, included in the Fair and Accurate Credit Transaction Act.  The launch of is the most obvious new consumer right included in the law. It entitles every American consumer -- about 200 million people -- to a free copy of their credit report each year.

Any consumers who believe they are a victim of identity theft, or have been turned down after applying for credit, is already entitled to a free copy of the report.

"We always encourageed consumers to regularly look at their credit report," said Coleen Martin, a spokeswoman for Trans Union.  She said it might be wise for some consumers to wait until later this year, when they are about to make a big purchase, before taking advantage of their single free copy.  "I  would encourage consumers to use it when it most the makes sense for them."

Consumer advocates are watching closely.  Several studies have shown that credit bureau data is riddled with errors. A study published in October by the National Association of State Public Interest Research Groups indicated four in five credit reports contain errors. Mistakes can be as simple as a mistyped address, or as complicated as a list of defaulted loans, taken out by an identity thief in the victim's name and never repaid. Privacy advocate Rob Douglas urged consumers to quickly take advantage of the Web site, and be prepared for some unhappy surprises.

"I think there will be a more than a substantial number of people who will discover there are errors on their credit report," he said.

Not all consumers can get their credit reports beginning in December. Earlier this year, the FTC issued guidelines that allows the bureaus to roll out the new feature in stages, to avoid overwhelming the new system. Only residents in the Western part of the United States will be able to access the reports on Dec. 1.

The region includes Alaska, Arizona, California, Colorado, Hawaii, Idaho, Montana, New Mexico, Nevada, Oregon, Utah, Washington, and Wyoming. The Midwest gets added to the system in March, the South in June. Residents in Eastern states will have to wait until September. The staged rollout was designed to help the credit bureaus deal with what may be a deluge of traffic, said Peggy Twohig, assistant director in the Federal Trade Commission's division of financial practices.

"There are about 200 million people who could take advantage of this, so, because it's brand new, the commission thought it was important to have it roll out so the bureaus can adjust and build up to nationwide demand," Twohig said. "No one knows how many consumers are going to jump online."

The toll free number consumers can call is 877-322-8228. Written requests can be sent to Annual Credit Report Request Service, P. O. Box 105281, Atlanta, GA 30348-5281.

Like an annual checkup
Looking at a credit report is a fact of life in the world of free-flowing credit. Some studies suggest as many as 1 in 15 Americans have been a victim of some kind of identity theft, and many still may not know it.

Consumers should make a habit of checking their credit reports, said Beth Givens, director of the Privacy Rights Clearinghouse. 

"If you are a victim of identity theft, the earlier you find out the easier it is to clean up the mess," Givens said.  "Credit reports are notorious for being inaccurate. It's important to detect and correct any inaccuracies in credit reports."

When consumers visit, they will be asked a number of personal questions to determine their identity. Typical multiple-choice questions include: What company holds your mortgage? What is your monthly payment? Who holds your auto loan? The questions required "out-of-wallet" answers, to prevent an imposter from looking up the report details. The bureaus will also be marketing additional services to consumers who use the Free site. Experian, for example, offers to sell consumers a peek at their credit score, and a service to prevent identity theft.

"I am sorry marketing is allowed," Givens said. "It alters the spirit of the law."

Gallow-Vazquez's tale follows a typical storyline. She spent months trying to get police in Tempe, and in Englewood, Calif., where her imposter lived, to pay attention to her story. She sent reams of certified letters to the credit bureaus to clean up her credit.  She even drove to California, out of frustration, in an attempt to get one of the departments to file a police report about the incident.

"I was really freaked out. I had to actually beg the police officer to do file a report," she said. "It didn't matter where I tried to look, it was always a dead end. It was a horrible experience."

Credit reports now widely used
An accurate credit report is more important than many consumers realize, Givens said, because the financial history is now used for more than just determining a consumer's creditworthiness. Prospective employers check job applicants' financial backgrounds. Insurance companies use credit reports to determine rates -- a low credit score means high auto insurance rates, for example. 

As recently as September, Gallow-Vasquez's imposter attempted to take out another loan in her name. The attempt shows up in the inquiries section of the report, which indicates all companies that have pulled a consumer's credit report in the past two years.  Failed attempts by imposters at gaining credit would show up in this section.

As a result, Gallow-Vasquez purchased additional credit reports, about one each month she said, to keep track of her imposter's movements. 

That can be pricey -- about $30 each time, she said.  Givens recommended consumers stagger their free credit report requests at throughout the year to give them a fairly constant idea of what's going on with their financial history.  For example, a consumer might pull their report from Experian in December, then Equifax in April, and Trans Union in August.  The three reports are not exactly the same, but they are similar, and a major identity theft incident would probably reveal itself on any one of the reports.

Consumers can dispute errors by following the instructions listed on the credit reports they receive. Procedures may differ slightly among companies.

Disputing errors is the hard part
The FTC's Twohig acknowledged the possibility that many consumers will find, and then dispute, errors on their reports. In the past, the bureaus have frequently been criticized for not clearing up errors fast enough.

"We already know dispute handling is far from effective," Givens said.

Martin anticipates many questions since many consumers will be examing their credit report for the first time.

  "At Trans Union, there will be a button you push (on their Web site) with instructions on what to do to send us your questions," she said.

The last time federal law required credit bureaus to help consumers fix mistakes in their credit reports, there were many snags.  Eventually, in 2000, the three credit bureaus were fined $2.5 million by the FTC for not answering calls to toll-free numbers set up so consumers could dispute inaccuracies. The system was overwhelmed by complaints, and not enough employees were hired to handle the call volume, the FTC alleged. Last year, Equifax was fined again for the same problem.

"The bureaus are aware that's a likely result," Twohig said.  "The whole idea of rollout is so they can see how it goes and increase staff, so they can adjust as the nation comes online."

Bob Sullivan is author of Your Evil Twin: Behind the Identity Theft Epidemic