Credit Report

By Megan McArdle

credit report.jpgThis morning, Kevin Drum has a horror story about a tax lien that seemingly can't be removed from a credit report.  Long story short:  confusion/error settling father's estate; tax lien incurred/cleared up; tax lien still there, making it hard to get a loan.

But as a reader points out in the comments, it's not quite that simple.  A valid tax lien is a credit event.  Just as with a bill collection, it doesn't go away merely because you've paid it.  The credit reporting agencies merely add the notation that it's been satisfied.

On the other hand, I can attest from personal experience that those smudges have staying power.  Through a series of bizarre events including a misfiled state tax return, multi-state residence, and an apparently incorrect address, the state of New York slapped me with a tax lien a few years back.  The State of New York has since admitted they were entirely in error, and indeed, that they owed me about $500 in refund. 

(Not that they paid.   Funnily enough, the statute of limitations for getting a refund from the state is much shorter than their statute of limitations for coming after arrears.)

The judgement has been vacated, the lien rescinded, yet it's still there on my credit report.  But the fault, Horatio, lies not in our credit reporting bureaus, but in ourselves.  Or rather, our governments.

The procedure for getting an error removed from your credit report is to send them a letter, and give them thirty days to investigate.  You may be astonished to realize this, but there is a population of people in this country with very low morals, and no, I don't just mean Lehman bankers.  Those scurrilous creatures will fake letters, even fake notarized letters, to gain personal advantage.  That kind of person is somewhat overrepresented in the population of people who have bad credit.  So the credit bureaus don't just accept a letter from the nice folks at the IRS. They call the IRS to check.

And apparently, in my case, when they check, the New York courts merrily inform them that I sure did have a tax lien against me, though it's been "cleared".  Which sounds like "paid".  And there it sits.

Eventually, I'll have to actually go to whatever absurd lengths are required to truly scrub the thing, but it hasn't been a huge priority--the hit to my FICO score will only really matter if and when I want a mortgage.  And if I can't, I will be very mad.

It is terrifying the power that these bureaus have assumed over us--when my bank made an error on my car loan, my first worry wasn't that they'd upped my payment by $60, but that the subsequent late charge for an undersized loan payment might show up on my credit report.  This was only slightly less panic-inducing than thinking that it might show up as a shadow on a chest x-ray.  The bank fixed its error immediately and cheerfully.  (And may I commend the Navy Federal Credit Union to all who are eligible for membership).  I doubt Experian would have been so accomodating.

But maybe it's worth remembering that the tyranny that credit scores exercise over our imagination have everything to do with the fact that we've built a society so utterly dependent on credit.  If you didn't need a credit card, an auto loan, and probably a mortgage to be considered middle class in this society, these opaque and unresponsive bureaus wouldn't be the most important source of information about us.

Photo by Flickr user TheTruthAbout . . .

This article available online at:

http://www.theatlantic.com/business/archive/2009/05/credit-report/17989/