Your credit report is one of your more important financial documents. It is used to calculate your credit score and forms the basis for creditors to evaluate your risk. Unfavorable errors in your credit report can cause you to be wrongly denied for loans or charged higher interest rates than your true credit history warrants. You can check your credit score and read your credit report for free within minutes using Credit Manager by MoneyTips.
How often do such errors occur within the three major credit bureaus (Experian, Equifax, and TransUnion)? It is important for Americans to know. Congress agreed in 2003 and directed the Federal Trade Commission (FTC) to conduct an extensive study on the accuracy of credit reports as part of the Fair and Accurate Credit Transactions Act. The primary study was conducted in 2012, with a follow-up final report issued in January 2015.
The findings were disturbing. Over one-quarter of consumers in the study (26%) found at least one "potentially material" error, meaning an alleged error in information commonly used to generate credit scores, on at least one of the three credit reports. At least one material error was confirmed in 21% of the respondents. If the sample is truly representative, that means that over 40 million of the more than 200 million consumers estimated to have credit files with the main bureaus are likely to have errors in their report.
Previous studies have found a wide range of credit error estimates, all with rates most of us would consider unacceptable. A 2004 report from the National Association of State PIRGs (Public Interest Research Groups) concluded that a whopping 79% of credit reports had errors of some kind, including 25% containing errors substantial enough to result in denial of credit. Older studies by state PIRGs and by the Consumers Federation of America found 29% of consumers had serious errors.
The FTC study went further by encouraging those with errors to dispute the errors using the mechanisms afforded by the Fair Credit Reporting Act, and then following up on the results of dispute resolution. In the 2012 study, 21% of the study participants (thus most with errors on their report) had a modification to at least one of those errors. Overall, 5% of survey respondents (20% of those with disputes) ended up after dispute resolution with a credit score increase considered large enough to merit better interest rates on loans.
Unfortunately, the FTC follow-up report shows that not all inaccuracies are dealt with to the satisfaction of consumers. 70% of the consumers contacted in the follow-up survey believed that at least one piece of information was still inaccurate in their report — and that was approximately a year after the initial study contact. A very small number of consumers (2 consumers, comprising 1% of that follow-up sample) actually experienced "reinsertion", where previously deleted erroneous information reappeared on a credit report!
The follow-up study also reported a lack of communication when erroneous information was not modified. The credit bureau's reasoning was provided in only 52% of the cases when a change was denied — making it difficult for consumers to decide whether to take any further actions.
Some experts think the epidemic of credit report problems is even worse. April Lewis-Parks, Director of Education and Public Relations with debt counseling organization Consolidated Credit, says, "Oftentimes, I think there's something like 80% of credit reports have errors. So it's likely that your credit report has an error on it. And you should act and try to fix it, don't just let it go."
The takeaway: errors on credit reports are relatively common, can be difficult to repair, and can have significant negative consequences. It is extremely important that you monitor your credit reports frequently to look for errors. If you believe there is a mistake on your credit report, you can resolve it with a single click using our credit correction service. Your credit report is too important to leave it unattended.