An inaccurate black mark on your credit score could have serious, long-lasting consequences.
When was the last time you checked your credit score? Are you certain that the information in your credit report is correct or is it possible that your score is being brought down by inaccurate data?
Unfortunately, for a significant number of Americans, the latter is true. In many cases, the affected consumer may not even be aware of the problem until they attempt to buy a car or a house or open a credit card.
According to a study conducted by TransUnion – one of the three major credit-reporting agencies in the U.S. – 33 percent of the Americans who participated in the survey admitted that they had never looked at their credit score. In addition, another 25 percent of those surveyed reported that while they had checked their score in the past, they had not looked at their report during the past year.
Consequently, many people may have egregious errors on their credit report and not even be aware of the problem.
Credit report errors more frequent than you might imagine
The frequency of serious errors on credit reports is more common than many people might believe. According to a study conducted by the Federal Trade Commission in 2013, approximately 20 percent of American consumers have a mistake on their credit report that affects their overall credit score.
When such errors are made on an individual’s credit report – negatively affecting his or her score – the financial consequences can be severe. A lower credit score can result in people having to pay higher interest rates. In addition, it may result in an individual being denied a mortgage or car loan or being unable to open a new credit card.
Credit bureaus mismerge credit reports
One common problem that leads to credit scores being inaccurate is the mismerging of different people’s credit information. According to the National Consumer Law Center, credit bureaus typically use a shortened version of your Social Security number on your file. Rather than using all nine digits to identify a person, they instead use a seven-digit shortened number.
Consequently, credit reports may be mismerged if two people:
- Have the same or similar names
- Live in the same state
- Have similar Social Security numbers
When data is mismerged, one person’s credit score may be negatively affected by information that should be on another’s report. The financial consequences of an improperly reported low credit score can be serious, including difficulty borrowing money at a reasonable rate.
According to a one-year investigation conducted by the Columbus Dispatch in 2012, over 5 percent of the consumer complaints made to the Federal Trade Commission contended that their credit report contained information that belonged to a different person.
Difficulties in making the credit reporting agencies voluntarily correct the errors they created
Unfortunately, even when people correctly identify an error on their credit report, fixing the mistake is often a painstaking ordeal. The three major credit-reporting agencies – Experian, Equifax and TransUnion – are profitable because they sell your credit information to third-party lenders.
In other words, the consumer is not the customer of the credit-reporting agency. Consequently, they are not motivated to work on behalf of the consumer, even when a serious mistake has been made.
The credit reporting agencies have increasingly come under fire in recent years, facing both civil lawsuits from consumers and scrutiny from government officials. For example, the New York attorney general recently forced the credit bureaus to enter into an agreement whereby the agencies agreed that they will hire and train individuals to respond to complaints made by consumers regarding errors in their report. Currently, most complaints are handled through automated systems. The trained employees will investigate the complaints by communicating with the lender who reported the information and fixing the error. This agreement by the credit bureaus is really just an agreement by them to actually comply with their legal obligations under the Fair Credit Reporting Act. It remains to be seen if this will create any meaningful change in how the credit bureaus handle consumer disputes of errors on their credit reports.
Talk to a consumer protection attorney
If it appears that the information in your credit report is not correct, you should consider seeking the counsel of a skilled consumer protection attorney. A legal professional will work diligently on your behalf to ensure your credit score is accurate and your financial wellbeing is not negatively affected.