Are Credit Report Errors Costing You?

One in four credit reports has an error—and it could be hurting your financial health.

By Christina Couch

If you're not qualifying for the same low interest rates as your neighbor, it may not be your fault. A study by the Federal Trade Commission (FTC) found that one out of every four consumers has a mistake on at least one of their credit reports. One in 20 found a mistake significant enough to raise their credit score by more than 25 points. For consumers with low credit scores, that can mean the difference between qualifying for a loan or not. For those with higher scores, a 25 point boost could result in a significantly lower interest rate on a loan or mortgage.

To ensure that you're not forking over money because of a credit inaccuracy, here's what you need to know about finding and correcting credit mistakes.

Pull Your Reports

Each of the three major credit bureaus—Equifax, Experian and Transunion—create separate credit reports based on:

  • your payment history
  • how much debt you carry
  • the types of credit you have
  • the length of your credit history

They use that information to calculate your credit score which, in turn, is used to determine your eligibility and interest rates on credit cards, loans and mortgages. FICO credit scores range from 300 to a perfect score of 850, but scores of 740 or above are generally considered good according to Greg Meyer, Community Relations Manager for Meriwest Credit Union in San Jose, California.

The first step in ensuring that your credit score truly reflects your financial activity is to examine your credit reports. You can get a free copy of your report from each of the three credit bureaus once per year at Annualcreditreport.com.

Checking for inaccuracies is especially important if you've had a debt that's gone into collections and is now paid off, Meyer adds.

"A late payment can have an effect of 60 to 70 points on your score. A collection is much harder than that, maybe 100 points on your score," he says. 

Once paid off, collections accounts should have no impact on your credit report after seven years, starting from the date that it was first delinquent. If you've had a debt that's previously been in collections, Meyers recommends making sure that the account is marked as paid and that it's removed from your credit report if it's been paid off for more than seven years.

Other common credit report mistakes include: incorrect personal information such as outdated addresses where you no longer live, incorrect Social Security numbers, and loan or credit card payments that have been applied to the wrong account, according to Fair Isaac Corporation.

File a Dispute

If you do spot an inaccuracy, you'll need to file a dispute either online or through snail mail with the credit bureaus involved. To file a dispute, you'll need to write a letter explaining the situation (here's an example from the FTC) and provide proof to back up your claim, explains Deatra Riley, financial education manager with CredAbility, a debt management and credit counseling nonprofit in Atlanta. 

"They can include things like a canceled check [or] bank statements that show the account has been paid..." says Riley. "...We always suggest that people send copies of their documents and not the original copy. It can be very hard to get those originals back."

Riley also recommends keeping records of the date you send out documentation and following up periodically to ensure that your dispute was received and is getting attention. Meyer recommends sending all documentation by certified mail so you have traceable records of when your dispute was delivered.

Keep Checking In

Once your dispute is received, credit bureaus have 30 days to review your case and they're required to provide you with an explanation of the results in writing along with a free copy of your credit report, if any changes are made. On top of the 30-day investigation window, it can take an additional 30 to 45 days for any changes to affect your credit score, adds Riley. 

According to the FTC, credit disputes are often successful. Approximately 80 percent of consumers who filed disputes with one of the three credit bureaus saw a change in their credit report. 

Even if you don't get the result you want, there is still one final step you can take:

"If a consumer doesn't agree with the outcome of a dispute, they can attach a 100-word or less explanation to their credit report which explains the circumstances around the dispute...," says Gail Cunningham, Vice President of Membership and Public Relations for the National Foundation for Credit Counseling. "This information will be attached to each credit report, but may or may not make a difference with the lender."

Consumers who include a statement about a dispute can request that the credit reporting service send that statement "to anyone who received a copy of your report in the recent past," according to the FTC. However, you may have to pay a fee to do so.

Comments

A groundbreaking study by the Federal Trade Commission has found that credit rating errors are far more widespread than many recognize. Among other conclusions, the FTC found up to 26 percent of Americans have credit report errors and just over 2 percent of Americans have serious errors. Moreover, the typical advice to contact creditor bureaus does not work for millions and that is the problem. The credit bureaus simply report what the creditors tell them to report. When a consumer complains, the bureaus simply confirm the same incorrect information with the creditors and,millions of consumers get stuck at this point, having no leverage to get the creditors to fix errors.

skyPoe on 2013-04-09 04:29:17

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