If you think just keeping a good credit record is enough to get you favorable terms for a loan -- think again.
A study of the U.S. credit reporting industry by the Federal Trade Commission (FTC) found that five percent of consumers had errors on one of their three major credit reports that could lead to them paying more for such things as auto loans and insurance.
Overall, the study on credit report accuracy found that one in five consumers had an error on at least one of their three credit reports.
“These are eye-opening numbers for American consumers,” said Howard Shelanski, Director of the FTC’s Bureau of Economics. “The results of this first-of-its-kind study make it clear that consumers should check their credit reports regularly. If they don’t, they are potentially putting their pocketbooks at risk.”
The study, in which participants were encouraged to use the Fair Credit Reporting Act (FCRA) process to resolve any potential credit report errors, also found that:
- One in four consumers identified errors on their credit reports that might affect their credit scores;
- One in five consumers had an error that was corrected by a credit reporting agency (CRA) after it was disputed, on at least one of their three credit reports;
- Four out of five consumers who filed disputes experienced some modification to their credit report;
- Slightly more than one in 10 consumers saw a change in their credit score after the CRAs modified errors on their credit report; and
- Approximately one in 20 consumers had a maximum score change of more than 25 points and only one in 250 consumers had a maximum score change of more than 100 points.
Karla of Louisville, KY, knows what it's like to deal with erroneous credit reporting. "I have been fighting for nearly a year to get Equifax to correct mine and my husband's credit reports," she writes in a ConsumerAffairs post. "They are reporting a mortgage delinquency on both our reports for May 2008 and on my husband's report, only for October 2009. This is a joint account; shouldn't reported info be the same on both reports? Neither delinquency ever existed!"
Jacob of Alexandria, VA, wants his life back -- literally. "I recently applied for a credit card with Capitol One and I received the following response from them on 1/26/2013: 'Based on the credit report from TransUnion for Jacob **, applicant is reported as deceased,'" he says in a post on ConsumerAffairs. Jacob wants to know how this is going to be corrected.
“Your credit report has information about your finances and your bill-paying history, so it’s important to make sure it’s accurate,” said Charles Harwood, Acting Director of the FTC’s Bureau of Consumer Protection. “The good news for consumers is that credit reports are free through annualcreditreport.com, and if you find an error, you can work with the credit reporting company to fix it.”
First-of-its kind study
The FTC report is the first major study that looks at all the primary groups that participate in the credit reporting and scoring process: consumers; lenders/data furnishers (which include creditors, lenders, debt collection agencies, and the court system); the Fair Isaac Corporation, which develops FICO credit scores; and the national credit reporting agencies (CRAs).
It is based on work with 1,001 participants who reviewed 2,968 credit reports with a study associate who helped them identify and correct possible errors on their credit reports.
Consumers in the study were selected to match the demographic and credit score information of the general public, and participants were encouraged to dispute errors that could affect their credit standing. Credit reports with potential errors identified by study participants were sent to Fair Isaac (FICO) for rescoring.
After completing the FCRA dispute process, study participants were provided with new credit reports and credit scores. The original reports were then compared with the new reports. If any modifications were made as a result of the disputes, the impact of errors on the consumer’s credit score was determined.
The FTC has a wide range of general information for consumers on credit reporting issues, including Free Credit Reports, Disputing Errors on Credit Reports and Your Source for a Truly Free Credit Report? AnnualCreditReport.com, as well as a new consumer blog posted titled It Pays to Check Your Credit Report.
It also has information available on how credit scores affect the price of credit and insurance and what consumers need to know about their credit reports when looking for a job. Finally, the FTC has a video for consumers on how to get a free credit report.