Study finds costly credit report errors are common

As many consumers know, one of the most influential factors in your ability to obtain credit and favorable interest rates on personal and secured loans is your credit score. Your credit score is determined primarily by your payment history (charting all missed or late payments within the last seven years), with additional emphasis placed on the amount of credit currently extended to you and the amount of debt already in your name (among a number of other factors).

Because your credit score is used by lenders and credit card companies to determine your “credit worthiness” having a low score could end up costing you a lot of money in the long run. This is because a low score is interpreted as a high risk, which lenders balance by charging higher interest rates. If you have a high credit score you’re considered to be less of a potential risk, which allows lenders to extend you more money at lower rates.

The problem is that the process of compiling the information that makes up your credit score isn’t foolproof. All three major reporting bureaus (TransUnion, Equifax and Experian) may report different information about a consumer and, according to a recent study conducted by the Federal Trade Commission (www.ftc.gov), errors are even more frequent than originally believed.

Most interestingly, the report found that five percent of all consumers had errors on their credit report that could cost them money on loans and insurance. Overall, one in five consumers were found to have some kind of error on at least one of their three credit reports.

Of the consumers who identified an error on their report and filed a dispute with the corresponding credit bureau, four out of five had their credit report modified or corrected. Slightly more than ten percent of the consumers who had their credit report modified saw their score change as a result.

These findings highlight the importance of monitoring your credit reports regularly. Errors often go undetected until a potential lender pulls your report – at which point you may be on the verge of losing out on a good rate or not having credit extended to you at all.

All consumers are entitled to a free copy of their credit report from each of the three reporting bureaus every year. Be sure to take advantage and review your reports regularly. If you do notice an error, send a written dispute to the reporting bureau immediately – it can take up to 60 days for the dispute to be reviewed and the error corrected.

For more information on how your score is calculatedhow to build good credit and how to correct reporting errors should they occur, be sure to check out our extensive financial education section. We also offer in-person workshops on this and many other topics in select areas.

Jesse Campbell is the Content Manager at MMI, focused on creating and delivering valuable educational materials that help families through everyday and extraordinary financial challenges.

  • The Consumer Federation of America (CFA) is an association of nonprofit consumer organizations that was established in 1968 to advance the consumer interest through research, advocacy, and education. Today, nearly 300 of these groups participate in the federation and govern it through their representatives on the organization's Board of Directors.
  • The National Council of Higher Education Resources (NCHER) is the nation’s oldest and largest higher education finance trade association. NCHER’s membership includes state, nonprofit, and for-profit higher education service organizations, including lenders, servicers, guaranty agencies, collection agencies, financial literacy providers, and schools, interested and involved in increasing college access and success. It assists its members in shaping policies governing federal and private student loan and state grant programs on behalf of students, parents, borrowers, and families.

  • Since 2007, the Homeownership Preservation Foundation (HPF) has served as a trusted, neutral source of information for more than eight million homeowners. They are partnered with, and endorsed by, numerous major government agencies, including the U.S. Department of Housing and Urban Development and the Department of the Treasury.

  • The mission of the U.S. Department of Housing and Urban Development (HUD) is to create strong, sustainable, inclusive communities and quality affordable homes for all. HUD works to strengthen the housing market in order to bolster the economy and protect consumers; meet the need for quality affordable rental homes; utilize housing as a platform for improving quality of life; and build inclusive and sustainable communities free from discrimination.

  • The Council on Accreditation (COA) is an international, independent, nonprofit, human service accrediting organization. Their mission is to partner with human service organizations worldwide to improve service delivery outcomes by developing, applying, and promoting accreditation standards.

  • The National Foundation for Credit Counseling® (NFCC®), founded in 1951, is the nation’s largest and longest-serving nonprofit financial counseling organization. The NFCC’s mission is to promote the national agenda for financially responsible behavior, and build capacity for its members to deliver the highest-quality financial education and counseling services.