The federal government says that 40 million Americans have a mistake on their credit report. In half of these cases, the mistakes affect their credit score by 25 points or more. OUCH!
Mistakes on your credit report can affect your credit score, potentially costing you thousands of dollars in interest payments on mortgages, auto loans and credit cards. These mistakes can also raise your insurance premiums, hinder job opportunities and lead to denials for rental properties.
The news that millions of credit scores are affected by faulty credit reports comes from a 2012 study done by the Federal Trade Commission and a backup study released in 2015. The 2012 study, mandated by Congress after so many consumers complained about resolving inaccuracies on their credit reports, found that 4 out of 5 consumers who filed a dispute saw some modification to their credit score.
The follow-up study revealed that 70% of the people who disputed information on their credit report believed that the information was still inaccurate — even after the credit bureau said it corrected the mistake.
“These are eye-opening numbers for American consumers,” said Howard Shelanski, director of the FTC’s Bureau of Economics, in a prepared statement after the 2012 report. “The results of this first-of-a-kind study make it clear that consumers should check their credit reports regularly. If they don’t, they are potentially putting their pocketbooks at risk.”
How to Dispute Credit Report Mistakes
If your credit score has been dinged because of mistakes on your credit report, the Fair Credit Reporting Act (FCRA) gives you rights to get things corrected.
The first step is to request a free credit report from the three major credit bureaus — Experian, TransUnion and Equifax — and examine the contents closely. The FCRA says that each agency must provide consumers one free credit report every 12 months. The optimal way to do this would be to order one report from a bureau every four months.
If you find a mistake, you could dispute it directly with the creditor who supplied the information to credit bureaus or go to the credit bureau that published the report, but it is best to dispute it with both to preserve your legal rights under the FCRA.
You should file a letter stating very clearly what part of the report you dispute and why you think there is a mistake. Send the letter via certified mail with a return receipt requested. The letter should include copies (i.e. not originals) of evidence supporting your claims (e.g. receipts, bank statements, cancelled checks, etc.) that prove a mistake was made.
If you are not sure what format to follow in writing the letter, you can find a sample dispute letter on the FTC website.
Should I Take the Dispute to A Credit Bureau or Creditor?
The fastest way to resolve a credit dispute may be to contact the creditor directly and try to have the mistake corrected by them. If it’s a simple mistake (e.g. a misspelled name, incorrect address, wrong employment information, etc.), the creditor likely will resolve it on the spot.
However, if the dispute is over payments made and when they were received, it is best to either start a dispute or at least include the credit bureau in the process.
Experian, Equifax and TransUnion all have places available on their websites to file a dispute online. If this is the route you choose, be sure to attach relevant documents (e.g. receipts, bank statements, etc.) to support your case.
The preferred method is still sending the letter and backup documents via certified mail. Make sure you have the correct address for the creditor and the credit bureaus.
After sending the letter, follow up with a phone call to verify that the creditor and credit bureaus are working on the dispute. The investigation should happen within 30 days of receiving your letter.
How Mistakes Show Up on Credit Reports
The three major credit bureaus receive financial information on 200 million Americans. With that much information coming in, there are bound to be mistakes. Eight million people file disputes every year.
The credit bureaus like to say that they only report the information delivered to them by merchants and banks and thus, if they are given incorrect data, it’s not their fault. That is only partially true.
Many errors are simple clerical mistakes that occur during data entry. The person entering the data may not be able to read the handwriting on an application, leading to name misspellings, wrong addresses or social security numbers being entered.
Costlier errors happen when people are misidentified because they have similar names, addresses or social security numbers and the mistake shows up on their credit report. For example, information on a student loan payment for a Tom Smith from Kansas could be entered on a credit report for a Tom Smith from New York.
If it’s negative information (i.e. a late or missed payment), the Tom Smith from New York is penalized for something the Tom Smith in Kansas did. This happens a lot and is the primary reason consumers should check their credit reports regularly.
Something similar can occur in cases of identity theft. The identity thief can use your personal information to open a new account — typically with a credit card company. This can cause huge problems, especially if the identity thief is able to open multiple accounts.
Erroneous account information (e.g. wrong due date on mortgage payments, incorrect limit on credit cards, failure to report account closings when a loan is paid off, etc.) is also a common mistake on credit reports.
That is why it is so important to verify every account listed when you receive your annual free credit report. Check to be sure that each creditor listed is someone you have done business with and the amount owed is accurate.
If problems persist, you can place a security freeze on your account, which prohibits anyone — including you — from opening new lines of credit.
Time Frame for Repairing Credit Report Mistakes
It can take weeks — even months — for credit report errors to be corrected. The FCRA compels creditors and credit bureaus to conduct investigations. A 2015 court ruling in New York that favored consumers has improved the process, but it can still be long and tedious.
Before the New York ruling, the investigations often were handled by third parties, many of them located outside the United States. The “investigations” often consisted of nothing more than making a call to the bank or merchant to ask if a payment was received. If the answer was that no payment was received, that was the end of the investigation.
However, as part of a settlement in a class action suit against credit bureaus, all three credit agencies agreed to train their own investigators and do a more thorough job examining mistakes. There was no time frame specified for the training, but the system should improve significantly sometime in 2016.
When the creditors and credit bureaus complete their investigation, they must send you a summary report and decision on whether your dispute was upheld or rejected.
If your dispute is upheld, the creditor and credit bureaus must update their records and notify all three credit bureaus of the change. To ensure the correction was made, the credit bureaus must provide you another free copy of your credit report. The bureaus must also send correction notices to anyone who has received your report in the previous six months.
If the creditor and credit bureaus say no mistake was made and no corrections would be made, it could be because what you see on the free credit report sent to you is not the same as what banks, credit card companies or merchants see on reports sent to them. The free report that consumers see is seldom the same as what businesses see.
If you can’t win your argument with the creditor or credit bureaus, you can file a complaint with the Consumer Financial Protection Bureau and they may take up the argument for you.
If your dispute is still denied, you can contact a lawyer and file a lawsuit. If the mistake is hindering your ability to receive lines of credit or the ability to find a job or place to live, it may be worth it.