Aleta from Mena, Ark., has had a hard time getting a decent rate on a car loan all because of a mistake on her credit report. The problem started when she received a bill that was caused by a computer glitch and not because of money she actually owed. She tried to resolve the problem but the company ended up turning the bill over to a collection agency and the erroneous charge ended up on her credit report.
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Aleta eventually was able to get a letter from the company that she provided to the credit bureaus indicating that the bill was a mistake and should never have been turned over to collections. She even got the collection agency to vouch for her. But the delinquent bill remained on her credit report for many months, preventing her from getting the credit she needed.
Aleta is one of an estimated 10 million Americans with credit-report mistakes that are serious enough to result in higher interest rates on loans. When credit-report errors damage your credit score, the financial consequences can be costly. You may end up paying hundreds of dollars more in auto insurance, or thousands of dollars more in interest over the lifetime of your mortgage. Mistakes on credit reports can even result in missed job opportunities or stand in the way of getting an apartment.
Common credit-report errors include information on your credit report that might belong to someone else with a similar name or that may be outdated or simply wrong. Errors can be caused by the way credit-reporting agencies such as Equifax, Experian, and TransUnion match files, incorrect information reported by creditors or other data furnishers, or because of identity theft.
A recent report from Consumers Union, the policy and advocacy arm of Consumer Reports, "Errors & Gotchas: How Credit Report Errors and Unreliable Credit Scores Hurt Consumers" (PDF), highlights stories we’ve collected from people who have encountered problems with credit report errors. And just like Aleta, many found it incredibly difficult to get the credit-reporting agencies to fix mistakes on their reports.
That’s because the credit-reporting agencies devote limited resources to addressing errors, and the investigations conducted by creditors and other data furnishers are often inadequate. Typically, the credit bureaus accept the word of furnishers in disputes, even when they haven’t produced any evidence to prove the information is correct.
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Consumers also have a hard time getting access to the credit scores that lenders use to evaluate their creditworthiness. Of course, consumers can purchase their credit scores, but chances are they’ll end up with a score that’s different than what lenders rely on. Instead, credit-reporting agencies typically sell “educational” scores to consumers that are rarely used by lenders. Sometimes consumers sign up for what they expect is a free credit score, only to be pushed into enrolling in costly credit monitoring services. The scores offered through these services are usually different than the ones considered by lenders.
The difference between these scores can be significant. A recent analysis by the Consumer Financial Protection Bureau (PDF) found that the credit scores used by lenders compared to the scores typically sold by the credit bureaus would put consumers in a different credit-reporting category 19 percent to 24 percent of the time.
Fortunately, help may be on the way. Two U.S. senators—Brian Schatz (D-Hawaii) and Sherrod Brown (D-Ohio)—recently introduced the Stop Errors in Credit Use and Reporting (Secure) Act, a bill that would require credit bureaus to follow tighter rules for ensuring credit reports are accurate. It would also give consumers free access to reliable credit scores every year.
Credit bureaus are already required to follow “reasonable procedures to assure maximum possible accuracy” of the information on credit reports. But that vague requirement has given them a lot of leeway. The Secure Act requires the CFPB to more clearly define the “reasonable procedures” credit-reporting agencies must follow to maintain accurate reports.
The legislation also says consumers can get credit scores free every year when they request their annual credit reports. Under the bill, consumers must be given the same scores that are widely used by lenders to make credit decisions.
Maintaining an accurate credit report is absolutely critical in today’s economy. But too often, credit-report mistakes that are no fault of your own can cause real damage. Policymakers in Washington could make a real difference for consumers by adopting the reforms in the Secure Act.
This feature is part of a regular series by Consumers Union, the policy and advocacy arm of Consumer Reports. The nonprofit organization advocates for product safety, financial reform, safer food, health reform, and other consumer issues in Washington, D.C., the states, and in the marketplace.
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