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Credit Education
Credit Revolution
Chapter 15

Here's how the story goes: once a woman helped her mother in the kitchen, preparing ham. The daughter asked, "Mother, why do we cut the ends off the ham before we place it in the oven?"

"I'm not sure," the mother replied. "That's how your grandmother taught me to do it."

So, the daughter turned to the grandmother, sitting in a chair watching the preparation of the meal. "So, Grandma. Why do we cut the ends off the ham before baking?"

"Hmmm," answered Grandma, as she tapped her chin. "I'm not certain. As I recall, my mother taught me to do it this way and I always have."

Since Great Grandmother was in the other room, watching television, the girl went to her and asked, "Great Grandma, we're trying to figure out why we cut the ends off the ham before we put it in the oven."

"I don't know why you do it," Great Grandmother chortled, "but I do it because the pan I bought back in the Depression is too short for a full hamhock."

Sometimes, we do things just because that's the way they've always been done them. So, why is it that the credit bureaus wait seven years before removing negative credit from the credit report? Why is that the bottom-line basis for credit reporting and credit repair? There must have been extensive study bearing on millions of data points with piercing, professional analysis done by an army of statisticians, right? Wrong.

When the first version of the Fair Credit Reporting Act was enacted in 1970, a few lawmakers and their staff assistants must have remembered that seven is a lucky number, so they threw that into the act. Perhaps more likely, those lawmakers were lobbied heavily by the big banks of the day to make the reporting period as long as possible. Now why would anyone be interested in doing a crazy thing like that? Well, put simply, old credit report negatives mean just one thing to bankers: obscene profit. Old negatives provide a wonderful rationale for charging higher interest rates, but at the same time such customers are far "safer" lending bets than those whose negative credit history is brand new.

Once again, the longer you have poor credit, the richer the banking executives get, and seven years is a nice long time. In fact, the fat cats hope that you'll accrue another negative or two before the seven year period runs out on the other ones.

So, for them, maybe seven years really was a lucky number. In any event, today, seven years certainly represents the the "industry standard" impacting hundreds of millions of hapless consumers. But here's a reality check: There is no reason whatsoever to think that the seven and ten year limits are good indicators of a consumer's creditworthiness. It's not that seven years after a credit catastrophe, and ten years after bankruptcy, the consumer is magically reborn as a person ready to accept credit responsibility.

In fact, Dr. Bonnie Gution, adviser to President Bush on consumer affairs, remarked, "...it is our understanding that computer models that predict credit worthiness find most information that is more than two years old nonessential." Today, as proof of Dr. Gution's comment, some credit scoring models (such as the new "VantageScore," developed by the credit bureaus to compete with the better-known FICO® Score) are beginning to ignore credit information that is over three years old.

Moreover, in the United States, credit reporting is entirely voluntary. In other words, creditors aren't required to report their data to the bureaus for any length of time at all. In fact, they can and sometimes do (especially when coaxed by a good law firm) remove their negative credit report notations long before any seven year clock runs its course.

The FCRA was designed to protect consumers by imposing those arbitrary seven years only as a limit on creditors and credit bureaus. It may be hard to believe, but before that particular consumer protection statute was enacted, a person's credit history represented a permanent record where credit report negatives NEVER expired. Potential creditors would look down their horn-rimmed...


Load more of this Chapter

Credit Revolution: Path of the Smart Consumer 2007 John C. Heath, Esq., Dr. Randy Padawer, Jayson R. Orvis. All Rights Reserved. Published by Far Cliffs Multimedia, LLC

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