Carol Neal was a little surprised by a notice from the Spiegel catalog company acknowledging receipt of her credit application. She'd never sent one.
Later, Neal was even more surprised when Spiegel started calling her about overdue bills. Little did the Severna Park resident know that her credit nightmare was just beginning.
Before it was over, Neal spent months trying to straighten out her credit reports, and she and her husband finally got results only by turning to state authorities.
Like most consumers, Neal had paid little attention to the credit reporting system, and now she's outraged at an industry that affects the life of every adult American.
What happened to Neal illustrates the dramatic transformation of the credit reporting business.
Two decades ago it was a string of small local bureaus, often non-profit, that kept track of consumers' payment records on file cards. Today it is a multibillion-dollar industry, a computerized marketing machine dominated by three giant companies.
The big three are Equifax Inc., TRW Information Systems and Trans Union Corp. They use their credit files not only for their traditional business -- providing banks, retailers, and employers with consumers' credit histories -- but also for a wide and ever-growing assortment of products and marketing services.
The vast pool of data in the national system totals 450 million credit files -- several for nearly every adult American.
What is in those files can determine whether people get credit cards, boat loans, home mortgages, insurance policies and even jobs. And the files also are the raw material for specialized computer-generated lists of names and addresses sold to direct marketers.
The result is tons of junk mail, including offers of preapproved credit to consumers whose histories have been screened in advance.
The market is huge and so are the major corporate players.
Equifax, based in Atlanta, is a Fortune 500 company that calls itself the leading provider of credit information. It had revenues of over a billion dollars last year.
TRW Information Systems is part of the conglomerate TRW Inc. of Cleveland, another Fortune 500 firm. The subsidiary's revenues jumped from $539 million in 1988 to $760 million last year.
Chicago's Trans Union is privately held and does not release information about its revenues.
As the industry has grown, so has the number of complaints, according to the Federal Trade Commission. Last year, it received 9,000 written complaints about credit bureaus -- a 50 percent increase over the previous year -- and a 20 percent increase in telephone complaints and inquiries.
That is only the tip of the iceberg, according to a phalanx of consumer organizations that includes the National Association of Attorneys General, Consumers Union, Bank Card Holders of America, the U.S. Public Interest Research Group and the Consumer Federation of America.
These critics acknowledge that many consumers unjustly complain about negative but accurate information in their files. But many credit-worthy consumers are affected by blemishes that are not their fault.
Other problems cited by the consumer advocates:
* Obtaining credit reports can be costly -- as much as $90 for a couple in many states -- and they are hard to read.
* Getting errors corrected is time consuming and difficult, and the credit reporting companies sometimes react with indifference or even hostility.
* The industry does not disclose to consumers the credit ratings offered to businesses as a special product.
tTC * Credit files are too readily available to anyone with a "legitimate business need."
* Practices such as prescreening and target marketing -- the sorting and sifting of credit files for marketing purposes -- amount to an invasion of privacy.
Some critics point to a built-in ethical conflict: The credit reporting companies make their money selling information about consumers, but are mainly concerned with satisfying their customers -- businesses that pay to see credit reports.
"The heart of the problem is that credit bureaus are engaged in a fundamental conflict of interest," says Elgie Holstein, director of Bank Card Holders of America. "The credit bureaus' paying customers are their subscribers, not consumers."
The industry, meanwhile, defends its performance.
"The objective facts prove that we have done and continue to do our job very well," Walter R. Kurth, president of Associated Credit Bureaus Inc., the industry trade group, said at a recent congressional hearing.
"Few would disagree that our quality of life and standard of living to a large extent come from a strong consumer- and mortgage-credit system."
"We recognize that we need to do a better job," John Baker, senior vice president of Equifax, has said. "We need to start treating consumers like our customers."
Neal blames prescreening for her woes, which began when Spiegel sent a preapproved credit application to her old address in Buffalo long after she had moved.
The new occupant simply filled out the form, including a phony Social Security number, and forged Neal's name. The person then opened accounts with other companies in Neal's name, either by applying or through prescreened offers. The accounts were approved on the basis of Neal's credit report.
It was an investigator for a bank, calling to collect an unpaid credit-card balance, who warned Neal that something fishy might be going on. He sent her copies of her credit reports.
Neal's surprise turned to shock. The reports from the big three credit reporting companies bore her name, but not her Social Security number. And she hadn't lived in Buffalo since late 1986.
One report listed her Buffalo and Severna Park addresses and two Social Security numbers. And, worst of all, "there were 11 fraudulent accounts co-mingled with mine," Neal says.
The forger "actually paid the accounts for several months," Neal says. "I guess the idea was to build up the credit limit."
Neal and her husband embarked on a campaign to clean up the mess but say they ran into walls of indifference.
"We started calling the credit agencies," she says. "They wouldn't do anything on the phone. We sent certified letters. One certified letter came back with a notice checked off to please attach a $5 fee. They never read past the first line."
After a six-month struggle, the couple turned to George W. Jones, assistant commissioner in the Maryland Office of Consumer Credit.
"Mr. Jones was wonderful," says Carol Neal. "He got more done in one phone call than we did in months of writing letters."
Despite Jones' help, the problems weren't resolved for three or four months, and during that time Neal got more surprises. For example, a printout of her TRW credit report continued past her name and included the next two Neals in the computer.
Another surprise added insult to injury: Neal discovered that the forger of the Spiegel application had requested, and received, a copy of Neal's credit report.
A credit history dotted with mistakes can bring rejection for a job, a loan or for an insurance policy, say Jones and other consumer-protection officials. Such errors are not rare, they add.
The solution, the regulators and consumer advocates contend, is to beef up the 20-year-old Fair Credit Reporting Act, passed in the era of mom-and-pop credit bureaus but still the main legislation governing the industry.
Meanwhile, in Severna Park, Carol Neal is taking a breather before dealing with the last of her credit hassles.
"Collection agencies still call my house," she says. "I still get letters asking me to pay.
The credit-reporting companies "have a very arrogant attitude," Neal says. "They never apologized for something that turned my life upside down for months."
TOMORROW: Reforms are likely, but you also should take steps.
A complex creation
The nation's credit reporting network is a complex creation with hundreds of components. Here's a breakdown:
* There were 918 credit bureaus in the country as of April, according to Associated Credit Bureaus, the industry trade group. Two-thirds of the bureaus are computerized, meaning that subscribers can call up credit files instantly.
* Dominating the system are the three major credit reporting companies -- TRW Information Systems, Equifax Inc. and Trans Union Corp. -- which serve as repositories with about 150 million files each. The big three own 120 computerized bureaus and are affiliated with another 465.
* The system also includes 333 non-computerized bureaus that mostly provide service to local businesses in small communities.
* In addition to the 918 credit bureaus, there are about 200 other agencies called "superbureaus" which act as middlemen; they get information from the big three and resell it to small businesses that don't subscribe to a bureau.