Credit Score Error!

The Importance of Checking the Accuracy of your Credit Score.

According to the Consumer Federation of America (CFA) 70% of all credit reports in the United States contain at least one error.

We’ve already established how your credit report influences your credit score in our article Credit Score 101, so the fact that approximately 70% of credit reports are being negatively influenced by errors shouldn’t sit very well with you.

You should think of your credit report as your financial report card. It contains information gathered for all of the banks, lenders and credit card companies that you borrow from, and contains all of your financial behaviors. For example, it contains information about all of your credit behaviors:

• Car payments
• Student loan payments
• Mortgage payments
• Personal loan payments
• Business loan payments
• Credit card payments
• Utility (electrical and gas) payments
• Rental payments
• Services – such as phone and Internet payments

All of this financial behavior is gathered and tracked by the leading 3 credit bureaus in the United States - Equifax, Experian, and TransUnion. These are the 3 major credit report agencies, and it’s their job to keep tabs on the credit activity of every U.S. individual. When it comes time for you to apply for a loan or credit card, the lender will perform a credit check on you. A credit check takes your credit report into account. However if you think you have decent credit and suddenly creditors won’t approve you for loans and credit cards, a error on your credit report might be the reason.

Why do errors exist on credit reports?

Equifax, Experian, and TransUnion gather and store all of your financial information in a computer. Whenever something in your credit history changes, for instance you pay off the remaining balance of a loan, the bank, lender or financial institution will notify the 3 agencies separately. All 3 credit reporting agencies are contacted separately because they don't share information with each other. This can lead to one agency making a mistake or being behind or lax in updating your credit record. This explains why you might have a different credit score with Experian than you do with TransUnion, and exactly why you need to check your credit report once a year with all 3 credit bureaus to make sure they are up-to-date with no errors.

To obtain a credit report from each credit bureau, they will tell you that you’re required to pay a nominal fee, however many U.S. citizens are unaware that they’re entitled to one free copy of their credit report – from all 3 credit reporting agencies - every 12-months. Your free annual credit report is thanks to the Federal Trade Commission’s (FTC) Fair and Accurate Credit Transitions Act (FACTA). Established in 2003, the FACTA gives every U.S. citizen the right to obtain a free credit report from all 3 national credit bureaus. Here are the facts when it comes to obtaining a free, yearly credit report:

• You are entitled to a free copy of your credit report every 12 months.
• You can get one free credit report from each credit bureau - Equifax, Experian, and TransUnion – annually.
• The information gathered on your credit report will determine your credit score or FICO score.
• Any errors on your credit report, for example accounts still indicated as open that have been closed or paid in full - will lower your credit score.
• It is your responsibility to notify each of the 3 credit bureaus about any errors on your credit report.
• If you contact the 3 credit bureaus and provide documented proof of the error, they will remove the error.

Even if you only have one credit card and rarely charge purchases to it, it’s vital that you check your credit report yearly. Come time for a mortgage or car loan, an error on your credit report could cause you not to get approved or to suffer high interest rates. Once you’ve been denied credit – it’s too late! You can check your credit report after to make amends, but checking for errors in advance will prevent denials of credit due to errors and the time it will take to fix them and reapply.

Determining errors on your credit report

An error on your credit report could end up causing you serious financial friction when you apply for loans or credit cards in the future. However it’s up to you to order a free annual copy of your credit report from all 3 credit reporting agencies, otherwise you won’t get one in the mail.

Once you obtain your annual credit card report, look for these common errors:

• Another individual’s loan account may have been accidentally added to your credit report. This routinely happens at banks due to computer glitches or a file transfers.
• Identity fraud. This means that another individual is impersonating you financially – using your credit cards or applying for loans using your name.
• If you are named after another member of your family, for instance John Jones Jr. credit companies can frequently mix you up with a parent with bad credit.
• Accounts are sometimes indicated as left open on your credit report when they have been closed or paid in full.
• Missing or incomplete information on your credit report can lead to denied credit.
• If a company that you owe money to goes out of business, they sometimes won’t inform customers. If you have automatic payments coming out of your account, sometimes you won’t even notice.
• If a company that you owe goes bankrupt, they will routinely transfer their outstanding accounts to another organization – sometimes without informing clients leaving you in default of your loan.

How to remedy errors on your credit report

In the case of a lender that goes out of business or transferred your account - Contact the company that holds your outstanding account ASAP! Explain your confusion, most will understand, and offer to make payments to right the default. Also, if you check your credit report yearly you can stay on top of these types of errors before they get out of hand.

In the case of accounts left open that you have paid off – If you order a yearly credit report you may find instances of accounts indicated as unpaid that you actually closed. If you find instance of this on your credit report, contact the holder of the account (the lender) immediately and ask them to update your account. Also tell them that you want the credit bureaus to receive the update as well, and be sure to follow up with the credit bureaus to make sure they received the change. This is why it’s important to keep copies of paid accounts in your files – just in case you need proof of the paid account.

In most cases, a phone call to the lender or credit bureau to right errors on your credit report will take care of it, but keep the following tips in mind to protect the accuracy of your credit report:

Keep copies – Keep meticulous copies of all credit documentation – payment statements, paid-in-full accounts and etc.

Contact the right people – For details about obtaining free annual credit reports contact the Federal Trade Commission at 1-877-382-4357 In the case of credit card error you will need to contact the account holder (the lender of your account) first, and then follow up with the 3 major credit card bureaus in order to ensure they received the notification of error:

Equifax
P.O. Box 740241
Atlanta, GA 30374-0241
1-800-685-1111

Experian
P.O. Box 2104
Allen, TX 75013-0949
1-888-397-3742

TransUnion
760 W. Sproul Road.
Springfield, PA 19064-0390
1-800-888-4213