25% Of Credit Reports Contain Serious Errors

Approximately one in four, or 25%, of credit reports contain errors serious enough to prevent consumers from receiving the best rates on loans, if they can get them at all according to CNN Money.  Yes, the cited study is almost 5 years old, but I don’t think the error numbers have changed dramatically since then.  Given that even a 1% increase in your mortgage interest rate can increase the monthly payment by hundreds of dollars and equate to tens of thousands of dollars over the life of your loan, it pays to make sure your credit report doesn’t contain harmful errors.

What Kinds Of Errors Are Most Prevalent?

The most common form of error on most credit reports is incorrect personal information, including

• Misspelled or incorrect personal information, such as a misspelled last name or incorrect birth date
• Outdated account information Ex. an account you closed 3 years ago is still showing as “active,” skewing your credit utilization ratio
• Listing mortgage or auto loans twice, giving the appearance you owe twice as much money as you actually do!
• A stranger’s credit information appears on your report out of the blue
• Information on your report is switched with that of another person with similar first and last names

How Do I Check My Credit Report?

Fortunately, the U.S. government has mandated that every consumer have free access to the contents of their credit report from each of the three major credit reporting bureaus through annualcreditreport.com, the official site set up and maintained by Equifax, Transunion, and Experian.  You can’t get your credit score for free via this site, but you can at least see the actual raw data used to calculate the score.  If there are any errors, it will show up on these reports.  As a word of warning, annualcreditreport.com is the ONLY official site to get a free credit score completely free and with no strings attached.  Sites like freecreditreport.com advertise themselves as being the place to get your credit report for free, but you have to sign up for a monthly credit monitoring service (which most definitely is NOT free) to get your “free” reports.

How Do I Dispute Errors On My Credit Report?

If you notice an error on your credit report, the simplest course of action is to call the agency reporting incorrect information and challenge the information.  By law, the credit reporting agency must conduct an investigation into the validity of the claim within a specified period of time and correct the error if it is, indeed an error.  If the agency comes back saying the erroneous information is correct, you are entitled to append a 100 word statement explaining the discrepancy in your own words.  While this sounds nice in theory, it’s pointless in practice since 99.9% of credit pulls are done by a computer and are only interested in your score.  In cases where you’re borrowing large amounts of money and dealing with an actual person, such as a mortgage loan officer, your statement might come in handy.  In most cases, however, it won’t even be read by an actual person.  The Federal Trade Commission (FTC) has put together a 6-page guide (pdf opens in another window) on how to dispute credit report errors for further reading.