In 2013, a study by the Federal Trade Commission found that millions of Americans have serious errors on their credit reports. A follow-up study by the agency in 2015 showed the problem has still not been resolved. These errors can have significant impact on a your ability to get a consumer loan or credit, find a job, or even rent an apartment.
It’s also interesting to point out that the studies showed that 5.2 percent of the representative group found and, with the assistance of the report’s researchers, successfully challenged a mistake so serious that it had lowered their credit score substantially enough to burden them with higher interest rates.
Of course, the credit agencies saw this issue differently… stating that the creditworthiness of the majority of consumers was correct and that the system was working. Except, don’t tell that to the 20% who have incorrect and damaging information on their credit files. The FTC balanced industry’s viewpoint by noting the most troubling part of the report is that the credit bureaus don’t make it easy for consumers to fix the credit report mistakes.
Guidelines on how credit bureaus should conduct investigations are described in the Fair Credit Reporting Act (FCRA), but unless a consumer is well-versed in the FCRA rules and are able to force the credit bureaus to do their job correctly, most credit disputes are handled improperly and with almost predictable negative results.
In order to protect your finances, you need to understand your credit and learn how to review your reports to carefully examine all the information.
Consumers: Become familiar with your credit reports
What’s in a credit report? The short answer is that your credit report generally reflects your financial responsibility. Having negative items such as late payments, court judgements, and non-payment of current or prior obligations can result in the denial of basic necessities such as housing, employment, and utility service. It stands to reason that knowing what’s in your credit report is something with which everyone should be familiar. And, with the major credit bureaus compiling massive amounts of data about consumers on a daily basis, sometimes they get it wrong. According the TransUnion, fully one-third of Americans have NEVER checked their credit report. That can be especially damaging when the credit bureaus sell your credit report (that’s how they make money) to banks, lenders, employers, insurance companies, landlords, cell phone providers, utility companies and even employers you need the assurance your credit report is correct.
How Negative Credit Affects Your Finances
Democratic-NY Rep. Carolyn Maloney said “Being denied credit based on erroneous information impairs your future chances of getting credit and makes it harder to overcome the error…mistakes mushroom into very serious problems.”
It has become imperative that you rid your credit files of any errors, inaccurate and outdated information that can be viewed as negative. Learn how to dispute inaccurate information. Some consumers believe all they need to do is pay for goods and services with cash, but even paying cash does not relieve you from the need for good credit. Actions like renting a car or reserving a hotel room require the use of credit even if you plan to pay with cash.
The Three Major Credit Bureaus
The three major credit bureaus are Equifax, Experian, and Transunion. Each of the credit bureaus collect, store and maintain data about you and that data can differ from credit bureau to credit bureau. It is important to note that all three are for-profit companies who have an economic incentive in having the most comprehensive data available, but that doesn’t always translate into each company fiercely ensuring the accuracy of its data.
Who Has Access to Your Credit History?
The Fair Credit Reporting Act (FCRA) specifies who can see your credit report. In most cases, only you and those you give written permission to can access your credit report, but in many cases companies will slip in some kind of language in the small print allowing them access to your credit history. Some examples of those who can access your credit report are:
- Employers and potential employers
- Auto, home, and life insurance companies
- Cable and satellite companies
- Utility companies (telephone, electric, and gas)
- Cell phone providers
- Companies that you have a credit account with can regularly monitor your credit
- Government agencies considering you for licensing
- State and local child support enforcement agencies
- Any government agency
Any company or person that receives a copy of your Equifax credit report will be listed under the ‘Inquiries’ section of your file. Your neighbors, friends, co-workers or family members cannot access your credit report unless you authorize it.
With so many entities potentially looking at your credit you’ve got to keep on top of what they are viewing. One mistake can make the difference in getting approved for important purchases like a mortgage loan. Or, you may get approved but with less favorable terms.
So, What’s in Your Credit Report?
The FCRA requires each of the nationwide credit reporting companies — Equifax, Experian, and TransUnion — to provide you with a free copy of your credit report, at your request, once every 12 months. To get a free copy of your credit report see our post here. It’s easy and you should plan to get your free copy every year.The free credit report does not include your credit score. The credit bureaus charge a separate fee for your credit scores. The types of information included in your credit reports may include the following:
- First Name, Middle Name, Last Name
- Address and Telephone Number
- Social Security Number
- Payment History
- Account Balance
- Employment History
- Credit Limit
- Any information supplied by you when you complete an application for credit
- Public Information (bankruptcy, court judgments, past due child support, liens and foreclosures)
How to Spot an Error on Your Credit Report
The best method to spot an error on credit reports is to compare all three from the different bureaus. Remember, they’re not going to be exactly the same. Different creditors may report to specific credit bureaus only. Not all information is reported to all the bureaus and information changes constantly. Creditors may update at different times of the month so don’t be concerned if the balance on the same account is different between the bureaus.
Common errors to spot:
- Incorrect names or multiple versions of your name.
- Old addresses you have not lived at for years.
- Addresses where you have never resided. This could be a sign that someone stole your identity. Incorrect personal information could be an early sign that other things in your report could be wrong.
- New accounts you did not open.
- New inquiries you did not initiate.
- Collection accounts that report as revolving accounts or installment accounts.
- Late Payments. If one bureau notes a late payment on an account while another bureau has no late payments, that’s an error you should dispute with the bureau that has the late payment.
- Collection accounts. If you paid off a collections account, but there is no reflection of the paid status you need to dispute the entry.
- Charge-offs that have been sold or transferred but the balance does not reflect zero. That’s a common mistake creditors make.
- Outdated information should be disputed as well.
- Multiple collection agencies pertaining to the same account. This can kill a credit score. You find this often with medical collections. Once a collection account has been transferred or sold to a new collection agency, that new collection agency should be the only one reporting.
Disputing The Credit Bureaus: Protecting Your Creditworthiness
Remember the woman who sued Equifax for $18 million because they wouldn’t fix errors on her credit report even after she diligently stayed on top of them for 2 years? And just like the woman who sued Equifax, if you’re getting pushback when you ask for errors to be removed, don’t roll over and play dead. You’ve got to document, follow-up, document again, follow-up again…and then take it to the next level if necessary!
- File your dispute at the same time with both the credit issuer and the credit bureau.
- Do not use the automated system to dispute. Always use the manual form.
- Equifax’s manual form is available here. TransUnion’s manual form is available here. Experian’s manual form is available here.
- Send all documents by certified mail, return receipt requested.
- If the problem is not fixed, re-dispute it with the bureau and the credit issuers.
- If that fails, you must sue both the credit issuer and the credit bureau in small claims court. Talk to a clerk of court for guidance on the process. You do *not* need a lawyer to do this.
- Find out where the registered agent of the credit issuer and the credit bureau is in the state by calling your state’s corporation commission. Then serve them with the suit.
- Know that most of the time, the offenders will usually cave before the court date and remove the black mark from your report.
- If all else fails, contact the Consumer Financial Protection Bureau for help.
The credit bureaus do not always respond to disputes according to the rules of Fair Credit Reporting Act. This is not unusual and you may have to dispute errors several times before getting a favorable resolution. It is important to continue the dispute process to the end, no matter what it takes. This requires persistence and guerrilla tactics on your part. And it’s important to note that you must use the manual dispute form. Because you can send all the supporting documents in the world and the credit bureau won’t pass them on when they get in touch with the credit issuer. They simply send a 3-digit code that describes the nature of your dispute to the issuer.