Consumers with less-than-perfect credit have an opportunity to tell their side of the story to potential lenders via a "notice of correction" -- a short statement that explains the circumstances behind any unflattering data on their credit reports.
But how does a notice of correction work, how do you write one, and how much difference does it really make?
Under the Consumer Credit Act of 1974. a notice of correction gives you the option of recording up to 200 words on your credit report. Individuals can use it as an opportunity to explain a disagreement they're having with a creditor or merchant -- or elaborate on a short-term blip in their finances, such as divorce or redundancy.
Another popular reason to add a notice of correction to a credit report is to explain a dispute you're having with a company. However there are strict rules about what you can and can't say. Because lenders don't get a chance to reply to a notice of correction, they cannot be mentioned by name in a notice of correction.
"For example, an individual would not be able to submit 'O2 was wrong to record a late payment as I had cancelled my contract,'" says Duncan Bowker, spokesman for credit reference agency Callcredit. "Instead it would have to read, 'The company was wrong to record a late payment as I had cancelled my contract.'"
Each credit reference agency has its own rules for filing a notice of correction. For rules on submitting it online or by post, visit the instruction pages for each of the three credit rating agencies (Callcredit, Experian and Equifax):
The notice you submit will be reviewed by the credit reference agency before it's added to a report. It's advisable to add a notice of correction to all three, as you have no way of knowing which agency any individual lender might use. The Consumer Credit Act states that notices cannot be "defamatory, libellous, incorrect or frivolous."
If the notice of correction is rejected by the credit reference agency and the consumer disagrees with the credit reference agency's decision, the proposed text would be sent to the Information Commission Office (ICO) for final judgment, according to Bowker.
Although individual companies do not have the option to reply to a notice of correction, they're obliged to ensure that data supplied to the credit reference agencies is accurate and up to date.
if someone chooses to add a notice of correction about inaccurate information related to an account or late payment, they should ensure that they have also contacted the company directly to ask for their records to be updated," says Neil Munro, spokesman for Equifax.
How much weight lenders give to a notice of correction is difficult to quantify -- some might take it more into account than others. But before you take pen to paper, bear in mind that having a notice of correction on your report will slow down any future credit applications you make.
"Any application you make will have to be referred to the lender's underwriting team to manually assess," says James Jones, spokesman for Experian. "Credit scoring systems can't read and interpret prose, so it will delay any application you make. But if this changes a 'no' into a 'yes,' you'll probably be happy to wait a little longer for the decision."
Experian offers the following as a good example of how a notice of correction should be written.
I, Mr/Ms XXXXXX, would like to explain the circumstances that led to the late payments/defaults recorded against the account started on DD/MM/YY. I became unemployed and my income was reduced to XXXX. I unfortunately was unable to keep the original payment contract. I ask all lenders searching my credit report to take this into account.
You might also emphasise that you are making attempts to fix the problem -- by pointing out that you've made all payments on time for the past several months, for example. Also double-check your spelling and grammar before you submit your notice of correction. It creates a good impression.
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