Disputing Mistakes on a Credit Report
The three major U.S. credit reporting agencies compile consumer financial data that is assembled into credit reports that are used widely by lenders including credit card companies, mortgage lenders, auto lenders, banks, and many other lending institutions. Experian, Equifax, and TransUnion each maintain a massive amount of consumer data that serves as a foundation for each bureau creating and updating these credit reports on over 210 million American consumers nationwide.
These credit reports represent the creditworthiness of a potential borrower to a lender, as indicated by the individual’s borrowing history, repayment history, and credit score. Since credit reports monitor the long-term success or failure of an individual’s ability to repay debt obligations in a timely manner, they are central to a creditor’s decision of whether to lend, how much to lend, and at what specific terms and interest rates.
Are Credit Reports Always Accurate?
The simple answer is no. Because of the voluminous mountains of data used in assembling these reports and the prospect of human error as it applies to the process of data entry, mistakes are often made. In fact, a Federal Trade Commission study released in 2013 revealed that five percent of American consumers had errors on at least one of their credit reports that could result in receiving less favorable terms and interest rates on auto loans and insurance.
According to a study, 25% of consumers identified errors on their credit reports that could effect their credit scores, and 20% of consumers found an error on at least one of their credit reports that was later corrected by one of the credit reporting agencies following the filing of a dispute.
80% of consumers who filed disputes witnessed some modification to their credit report, and over 10% of consumers experienced an increase in their credit score as a result of the modification. However, a follow-up study released in 2015 revealed that almost 70% of respondents believed that some of the information on at least one of their credit reports remained inaccurate – even after having filed a dispute.
Types of Errors Found on Credit Reports
Some errors are relatively harmless – such as misspelled names or errant digits included in an otherwise proper address. These are less likely to impact a credit score and profile, thereby rendering them less likely to cause financial harm in the form of higher interest expense or outright rejection of credit. However, mistakes involving identity – ascribing erroneous information from an individual with the same surname or similar social security number that includes delinquent payments or loan defaults can easily harm a credit score and profile.
Additionally, the unwarranted inclusion of debt balances, due to identity theft or otherwise, that increases the credit utilization ratio (percent of available credit currently indebted) of an unsuspecting individual can also adversely impact a credit profile. Other notable credit reporting agency errors include failing to include when a loan is paid in full (an omitted benefit to a credit profile), and posting incorrect balances/incorrect credit limits on credit cards – further ways in which credit utilization ratio and credit score are adversely impacted.
How To File a Dispute
The first step is to send a certified letter to the appropriate credit bureau, return receipt requested. Disputes can also be addressed online. The Consumer Financial Protection Bureau (CFPB) provides a very useful pdf in the following link that includes a sample dispute letter template along with the mailing addresses and website dispute pages of the three major credit reporting agencies.
Be certain to include all appropriate information and documentation as explained by the CFPB and maintain copies of all documentation and correspondence for your own records. You should also send this same dispute letter with accompanying documentation to the bank or credit card issuer associated with the error included on your credit report.
The Fair Credit Reporting Act (FCRA)
The FCRA is the primary Federal legislation governing activities pertaining to the reporting of consumer credit information. Under the guidelines of the Fair Credit Reporting Act, any investigation related to a dispute that you file must be concluded within 30 days, with results of the investigation reported back to you within an additional five days. Similarly, the financial institution that furnished any incorrect information has 30 days to investigate your dispute.
Bear in mind that if you file incorrect or incomplete information with your dispute letter, the dispute can be dismissed as “frivolous.” However, this still must also be communicated back to you by the credit reporting agency. Any results of your dispute must be communicated back to you in writing by the credit reporting agency, along with a free copy of your updated credit report if, in fact, your dispute does lead to a change in your credit report.
Keep a Watchful Eye on Your Credit Reports
It is important to review your credit reports regularly to ensure that they remain an accurate reflection of your debt repayment history and overall credit profile. If you do spot any inaccuracies, immediately contact the appropriate credit bureau and file a dispute. Visit Annual Credit Report to request a free credit report from each of Experian, Equifax and TransUnion every twelve months.
Better still, you can stagger your free reports throughout the year, requesting one from each bureau every four months, allowing you to monitor your various credit reports on an ongoing basis. You can also request free copies of your credit reports by calling 877-322-8228. Either way, it’s worth the effort to monitor your credit reports, as inaccuracies remain far too common, while the information included within credit reports plays a direct role in any assessment of credit worthiness. Spotting these errors and promptly filing disputes related to them helps you protect your credit score and profile, making it easier for you to secure credit at the terms and interest rates that you appropriately deserve.
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