You could be shelling out thousands of dollars more for your mortgage, car loan or anything else you financed because errors on your credit report showed you were a higher credit risk than you actually were.
A study of the credit reporting industry by the Federal Trade Commission found that as many as 40 million consumers had errors on one of their three major credit reports. And 10 million of those consumers had “significant errors that lowered their classification,” says the report’s author, Beth Freeborn.
In some cases, the errors were so egregious that when they were corrected, consumers saw their credit scores rise by more than 100 points.
What’s worse, according to a CBS report on 60 Minutes Sunday, consumers who were interviewed said it was next to impossible to get the credit reporting bureaus to correct those mistakes.
If you have any doubt about how important those credit reports are, consider this: Banks and insurance companies use those reports to determine your creditworthiness. Some employers read those reports before they make hiring decisions. So if your reports contained major errors, you’re likely paying higher interest rates, or perhaps you were even denied credit or the opportunity to refinance. It may have even cost you a job or the ability to get security clearance.
“It’s so important for consumers to check their reports and dispute those errors,” says Freeborn of the FTC. “You can do this once a year for free. People don’t do this enough. Only about 25 percent of people with credit reports have checked them in the past.”
The study also found that 10 million consumers who disputed their reports were turned down for modifications by one of the three biggest credit bureaus — Experian, Equifax and TransUnion — because it sided with the lender or creditor.
Pamela Banks, senior policy counsel with the nonprofit Consumers Union, the advocacy arm of Consumer Reports, says she hears “overwhelmingly” from consumers on credit reporting errors. She says Consumers Union is also about to launch a campaign to get credit scores included in free credit reports.
“Consumers write to us about financial problems they have,” she says, “and one of the issues we get a lot of mail about is incorrect credit reports that have adversely affected their ability to get credit at a reasonable price.”
She also says that medical debt is a big issue. When consumers pay off bills that had been referred to collection agencies, the payoff is not noted or updated on their credit report.
Photo credit 401(k) 2013 via flickr.com