By Michelle Singletary
Washington Post
Sunday, July 11, 2004

I find it amazing that the credit reporting and scoring system -- something so important to how we do business -- is a mystery to many.

Credit agencies hold the financial histories of millions of people. The information is used to create a score (from a low of 300 to a high of 850) that determines how much you pay in interest for a mortgage, car loan or credit card. Credit scores can result in your losing your job or in the cancellation of your auto or homeowner's insurance policy.

And yet, according to one study by Consumer Federation of America, only 3 percent of Americans could, unprompted, name the three main credit bureaus. What about you? Can you name them? They sure know who you are, and they've got your credit number.

So what should you do to become more informed?

To start, I suggest you read Evan Hendricks's book "Credit Scores & Credit Reports: How The System Really Works, What You Can Do" (Privacy Times, $19.95).

In his book, Hendricks tells a scary tale of how vulnerable we all are when it comes to our credit lives. This cautionary story is why his book is the July selection for the Color of Money Book Club.

"The credit scoring and credit reporting system is a work in progress," Hendricks writes. "It would be inaccurate to characterize the system as totally or always unfair. But it clearly cannot be depicted as totally or always fair either."

To be honest, I didn't think this book was appropriate for the average consumer. At more than 300 pages, "Credit Scores & Credit Reports" is an extensive manual that includes just about everything you will ever want to know about the system and then some.

But you know what?

Ignorance is not bliss. Ignorance can cost you money.

In an interview, Hendricks said he wanted his book to inspire more consumers to "educate themselves about this big, complex system and the money and power involved."

This book clearly has a bias, and that's fine with me. For years, Hendricks, as editor, publisher and founder of the newsletter Privacy Times, has been testifying before Congress, trying to protect the credit rights of consumers.

As Hendricks points out, when the credit-reporting system breaks down, the impact on people and their families can range from inconvenience to financial devastation.

The latter is no exaggeration. Hendricks recounts how one consumer spent two years trying to convince credit bureaus and creditors that he was alive and was not his deceased mother. He writes about a young consumer whose new credit file was mixed up with an older man's with the same name. Nobody seemed to care that it was impossible for this young man to have had delinquent credit accounts when he was just 14.

Folks, these are not isolated cases. An increasing number of consumers have had to file lawsuits to get their credit files corrected.

In fact, one in four credit reports contains errors serious enough to cause consumers to be denied credit, an apartment lease or a home loan, according to a new survey released recently by U.S. PIRG, the national lobbying office for state Public Interest Research Groups.

U.S. PIRG collected 200 surveys from adults in 30 states who reviewed their credit reports for accuracy. Here's what the survey found:

• Seventy-nine percent of the credit reports had a mistake.
• Fifty-four percent had information that was either outdated or belonged to a stranger.
• Thirty percent of the credit reports contained credit accounts that had been closed by the consumer but were still being reported as open.

In "Credit Scores & Credit Reports," you get information based on advice from top consumer attorneys on how to dispute errors, and you learn what happens when credit bureaus investigate consumer claims of inaccuracies (actual court testimony from officials in the credit industry will make you shudder).

Key to the book is the front section, which explains how credit scoring works. For example, did you know the credit-scoring models place a great deal of weight on how recently you had a credit problem? So a 30-day late payment from last month could reduce your score more than a delinquency from years ago.

And the amount of money past due is not always as significant as how recently you were delinquent. "In other words, a $40 balance on an account that is currently 60 days late in some cases can do more damage to your credit score than a $3,000 collection account that appeared on your credit report four years ago," Hendricks writes.

"Credit Scores & Credit Reports" isn't light reading, but it sure will enlighten you. This book is available at www.barnesandnoble.com, www.amazon.com and www.creditscoresandcreditreports.com.

If you want to join the Color of Money Book Club, subscribe to my new electronic newsletter at www.washingtonpost.com/ac2/wp-dyn/admin/email. Scroll down the page and click on the box for "Personal Finance." As a benefit, each month randomly selected subscribers will get a free copy of the month's book club selection. Also join me at 1 p.m. July 21 at www.washingtonpost.com for an online discussion with Hendricks.

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