To employers, retailers, banks and more, you are what your credit report says you are. Even if it has errors, you own them until you have them corrected and removed.
In a February 10, 2013 CBS 60 Minutes interview with Steve Kroft, Federal Trade Commission Chairman Jeff Leibowitz asserted that one in five Americans has a credit report error. And, “one out of ten has an error that could lower their credit score.”
Kroft observed, “I am trying to think of another industry where a 20% error rate would be acceptable. That’s a pretty high error rate.” Chairman Leibowitz could only concur, echoing, “It’s a pretty high error rate.”
Sink or swim? Maybe so. Your financial future is largely based on your credit score number, or FICO score. A better score gets you lower interest rates on bank loans, business lines of credit, home mortgages and other consumer credit sources. A good score could also help get funding for a startup, or attract a business partner. Some potential employers may even look at your creditworthiness, especially if you are applying for a government job requiring a background check.
Under Congressional mandate, the FTC issued a follow up report (January 12, 2015) with additional negative findings. Specifically, 70% of those who had at least one unresolved dispute from the 2012 study continue to believe that at least some of the disputed information is incorrect. Of those, 45% plan to continue the dispute, but 50% will give up. Further, it found 1% of those who originally contested errors saw the incorrect information reappear later.
Assuming for a moment that the credit reporting agency is doing its job, many problems can lead to inaccurate reports. According to the ConsumersUnion report, ERRORS AND GOTCHAS: How Credit Report Errors and Unreliable Credit Scores Hurt Consumers (2014), there are at least four procedural causes:
- 1.CRA Mistakes and Procedures Credit: Credit Reporting Agencies reporting errors in a variety of ways: mixing records of people with similar information, using loose matching requirements, and omitting data important to the lender.
- 2.Furnisher Mistakes: Creditors furnish data to CRA, sometimes with simple typographical errors or even bigger systems problems. The CRAs, then, often fail to independently investigate the data feed.
- 3.Data Collection Mistakes: Debt collectors may report the incorrect starting date or delinquency date. The date of delinquency occurs 180 days after the first missed payment. But, collectors often change the date to the day they purchased the account, effectively “re-aging” the history.
- 4.Identity Theft: Too common and frequent identity theft makes consumers vulnerable. The 2016 Javelin Strategy report reads, “Identity fraud is a serious issue as fraudsters have stolen $112 billion in the past six years. That equals $35,600 stolen per minute, or enough to pay for four years of college in just four minutes.” To worsen the situation, the ConsumersUnion notes, “24% of consumers who experienced this type of theft failed to discover it for at least six 61 months,” problems the victims find difficult to resolve with CRAs.
- 5. Personal Issues: Divorce, death, marriage, personal unsecured debts, outstanding medical bills, immigrant status, and other subsequent obligations can reach the credit report, clouding its accuracy. As Scott Smith, Co-founder and President of CreditRepair.com, observes, “Of course, the end of a marriage can be an expensive undertaking for both spouses, and to compound that fact, there can be worries over damage to credit and future finances. Many of our members have experienced divorce, and come to us with questions on how it could impact their credit.”
What’s the solution?
Consumers have rights assured by the Federal Credit Reporting Act (FCRA). Those rights start with a mandate that credit reporting agencies and information furnishers take responsibility for correcting mistaken and incomplete information in your report.
The FTC offers a sample dispute letter for reporting your challenge to the CRA. They recommend you send the letter and copies of support documents by certified mail, return receipt requested. You should also keep a copy of everything. The FCRA requires the CRA to respond within 30 days.
The FTC also provides another sample dispute letter addressed to the information provider. If you’re correct in the dispute, the provider must tell the CHRA to update or delete the error. However, if this does not work for you or if you want to accelerate the process and leave it to the experts, you should place the problem in the hands of pros.