Mistakes happen. But when a mistake results in inaccurate information being added to your credit history, it can cause serious repercussions.

Credit scores, which inform potential lenders if you are a good credit risk, are generated from the data in your credit files. Errors about outstanding debt, number of accounts, income, or payment history can lower your credit scores.

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Damaged credit could prevent consumers from getting credit cards or loans, or trigger higher interest rates to borrow money. It can affect whether they can rent apartments (landlords check credit scores), or get offered jobs (potential employers cannot see credit scores, but they can access an applicant’s credit file with their permission). Cell phone and cable companies may require larger deposits for customers with blemished credit scores. And, in most states, low credit scores dramatically affect how much consumers pay for home or auto insurance.

A unique study by Consumer Reports, released this week, found that errors in credit reports are all too common. CR put out the call for people to take part in its "Credit Checkup Survey," which asked about errors in their credit files. Nearly 6,000 people responded.

Here are the key findings:

The four most common errors reported in CR's survey were an unrecognized account, unrecognized debt reported to collections, payment wrongly reported as late, and payment wrongly reported as missing entirely.

Consumer Reports says its survey results highlight how the current credit reporting system “fails to serve consumers” and it calls for regulatory changes.

The Consumer Data Industry Association (CDIA) represents the nation’s credit reporting agencies, including Equifax, Experian, and TransUnion. Francis Creighton, CDIA president and CEO, told Checkbook CR’s survey was flawed and the results inaccurate.

“Imagine what would happen to the banking system if we had that many errors. It's just not true,” Creighton said.

Most of the errors people find, he insisted, are insignificant, such as a typo in a name, a wrong birthdate, or a mistake in an address (83rd St. instead of 83rd Ave.). None of these errors, he said, would lower your credit score.

Creighton said the industry has “an obligation” to catch and fix significant errors that could cause financial harm. “We want to get these things right,” he told Checkbook.

An Ongoing Problem

A 2012 study by the Federal Trade Commission found that one in four consumers identified errors in their credit reports “that might affect their credit scores.” About 10 percent of those who were able to get the errors corrected saw a positive change in their credit score. This shows that incorrect information can have a negative impact on creditworthiness.

“The credit bureaus are arrogant. They don’t change, and there needs to be more pressure put on them to do a better job,” said Ed Mierzwinski, senior director of the Federal Consumer Program at the U.S. Public Interest Research Group (US-PIRG). “For 50 years, they have failed to improve their accuracy. They have failed to complete their responsibilities under the Fair Credit Reporting Act, which includes a requirement that they have reasonable procedures to maintain the maximum possible accuracy.”

The Consumer Financial Protection Bureau (CFPB) received more complaints (63 percent of all complaints) about credit bureaus in 2020 than any other companies. The volume of these complaints more than doubled from 2019, going from 136,000 to 282,000, according to an analysis of the CFPB’s complaint database by the U.S. PIRG Education Fund released in March.

The majority of these complaints cited “incorrect information” on reports, and most of those complaints said the erroneous information belonged to someone else. More than 20 percent of these reports included the notation “identity theft.”

What Can You Do?

It’s important to check your credit reports at each of the big three credit bureaus—Experian, Equifax and TransUnion—at least once a year to look for mistakes and possible signs of identity theft. This is especially important for anyone who received any sort of loan forgiveness or forbearance because of the pandemic.

“It's all on you, the consumer, to catch any errors,” said Rachel Gittleman, financial services manager at the Consumer Federation of America. “There are no mechanisms in place to help the consumer in that regard.”

You can get a free copy of your Equifax, Experian, and TransUnion credit file once a week—for FREE—until April of 2022. Don’t search for “free credit report”—you have no idea where you might end up. Instead, use AnnualCreditReport.com. It’s the only site to use. If you are asked to buy anything or provide a credit card number, you’re on the wrong site. Log off.

Each credit bureau has a process for correcting errors. Since these are independent companies, correcting one does not fix the others. If you suspect you may be the victim of identity theft—for example, you find unfamiliar accounts or charges on your report¬—file a report and get a recovery plan at the FTC’s Identity Theft.gov website. You can also get help and answers to your questions from the non-profit Identity Theft Resource Center.

 




Contributing editor Herb Weisbaum (“The ConsumerMan”) is an Emmy award-winning broadcaster and one of America's top consumer experts. He is also the consumer reporter for KOMO radio in Seattle. You can also find him on Facebook, Twitter, and at ConsumerMan.com.