Reporting and Disputing Credit Report Mistakes
In this economy, with tightened credit and mounting debt, people are more concerned than ever about their credit scores. These mysterious numbers dictate who can qualify a loan and what payment terms they can expect to receive. In some instances, even borrowers with near-perfect credit can suffer from poor credit scores due to errors in their reports. Borrowers should have a firm understanding as to how credit reporting companies tabulate their scores, as well as how to repair any mistakes.
How Credit Reports Work
A credit report is a history of how a potential borrower pays their monthly bills and repays loans, such as car loans, credit cards or a mortgage. The report records how much credit the borrower has on the books, the level of their debts each month, and other pieces of information that helps lenders determine if a potential borrower is a safe credit risk. Credit scores run from 300 (poor credit) to 850 (excellent credit).
How Credit Reporting Companies Work
Credit bureaus, such as Equifax, Transunion and Experian, compile these credit reports from banks, court documents, and other public records. The bureaus then send out these reports on requests from banks, employers, insurance providers and other businesses. While the scores between bureaus are often within a consistent range, they may also have remarkable differences, as the same consumer’s score from one agency can be much lower than that from another. These discrepancies are often due to mistaken or incomplete information.
Common Mistakes in Credit Reports
According to a 2011 story in the New York Times, up to 25 percent of all credit reports contain serious errors. Some of the errors can be as simple as a change of name or address or other outdated information. Other factors that can hurt a borrower’s credit score can arise from clerical errors, mislabeling of accounts or miscalculating credit card limits. The errors that attract the most attention are those stemming from mistaken identity, either due to two individuals with the same or similar names, or outright identity theft.
How to Repair Credit Reports
The biggest step that borrowers can take to repair their credit reports is to request their information from the credit bureaus. The borrower can then locate any harmful mistakes and bring them to the attention of the bureaus. Once the borrower finds the specific errors, he or she can contact the respective bureaus with a dispute letter. The US Federal Trade Commission (FTC) provides a sample dispute letter on its website.
How the Credit Bureaus Correct Mistakes
With over 200 million credit files, and thousands of daily requests, credit bureaus are often overwhelmed with dispute resolution correspondence. The process of resolving a credit dispute is seldom quick, as it also involves contacting the lenders who submitted the mistaken information. A successful dispute resolution typically results in an improvement of only a few points on a credit score.