While we’ve previously talked about disputing credit report errors as well as the role of credit repair agencies in restoring your credit, it may seem like credit report errors are common occurrences, but are they really? To put it in perspective, we did some digging to find out how common credit report errors are and what types of mistakes people should be looking out for.
How common are credit report errors?
When we started our research, we found that answering this question may be rather difficult because the three major credit bureaus — Experian, Equifax and TransUnion — don’t report this information. That said, studies like the one conducted by the Policy and Economic Research Council and a decade long, six part study conducted by the Federal Trade Commission (FTC) have attempted to reduce the blind spot surrounding credit reporting errors. The Policy and Economic Research Council found that about 19% of credit reports had errors, with only 1% of disputes leading to a meaningful change in an individual’s credit score. Similarly, the FTC found that about 20% of consumers have an error on their credit reports and 25% of those consumers have an error big enough to affect their credit. A later FTC study suggested that even after disputing errors, almost 70% of consumers still find inaccuracies.
Although these statistics are interesting, in truth, no one really knows exactly how many people are affected by credit report errors, as studies have different methodologies of finding such information and the credit bureaus don’t report such statistics. A handful of other studies that suggest error or mistake frequency could be as little 3% or over 75%. Industry experts insist numbers aren’t very high, but considering each bureau is estimated to have more than 200 million individual files, even a 1% error rate could potentially impact as many as 2 million reports, if not more.
How do errors get there?
The cause of credit report errors is complicated, as they usually vary from case to case. Errors can come from any party in the reporting process – lenders, bureaus or consumers. For example, in terms of sorting information, the credit bureaus often use your name as well as partial matching of your social security number to connect your identity and accounts, which can sometimes result in your report reflecting accounts or a name that isn’t yours. In some cases, information is reported incorrectly (either printed incorrectly on the credit application or reported incorrect by the credit issuer) to the bureaus and consumers fail to catch them. In other cases, fraudulent information makes its way onto credit reports due to identity theft. People who are either unaware of their identity theft or uninformed that they need to take action to protect their accounts run the risk of errors on their credit reports.
What are some of the most common errors?
A credit report consists of personally identifying information, lines of credit open in your name, the number times your credit has been pulled or had inquiries as well as financial information in public records, like bankruptcies or accounts in collections. Errors can occur in any of these four key areas, with the most common being errors in identity or the credit lines listed under your identity.
Some of these errors can be basic inaccuracies, like a minor spelling error or an incorrect address, while others can be mistakes regarding changes in the status of your identity or lines of credit. For example, your maiden name may appear as the primary name on your report even after you legally changed it or an account you’ve personally canceled may show as “closed by credit grantor.” Other errors can include the appearance of fraudulent accounts — an indication of identity theft — as well as payments you’ve made showing up unreported. Keep in mind that not all inaccurate information, such as a misspelling of your name, will hurt your credit. Still, it’s better to be safe than sorry, which is why you should review your credit reports often and rid them of any errors, regardless of if your scores have been impacted.
What can you do?
Unfortunately, because of blind spots in the credit reporting system, consumers must remain vigilant in identifying report errors. Luckily, there are some tools that can assist you with this.
1. Monitor your credit statements. One of the easiest ways to know there is likely an error on your credit reports is to monitor your statements for your credit cards, personal loan, business loan, mortgage, home equity line of credit or any other credit account you may have. While doing so won’t help you catch major errors, like fraudulent credit accounts in your name, it will help you spot minor errors, like a spelling mistake with your name, as these errors are likely being reported to the credit bureaus. That said, you should also take your monitoring one step farther by checking your credit reports.
2. Check your credit reports. The best thing you can do to spot errors is check your credit reports often, as this is the exact reason why this advice is stated so frequently — it’s the strongest weapon you have against both fraud and errors.
There are a couple of ways to check your credit reports. The first is through AnnualCreditReport.com, a service authorized by federal law to provide you with one free copy of each credit report every year. While this service provides a copy of all three of your credit reports, you’ll have to pay a fee to see all three of your credit scores. It’s also important to note that some circumstances, such as denial of credit or placing a fraud alert, warrant you to get an extra copy of your credit reports, according to the Consumer Financial Protection Bureau.
Although a free credit report every year is definitely helpful, it may not be frequent enough to catch errors before they wreak havoc on your credit reports and scores — that’s where credit monitoring services might be useful. Most of these services not only provide you with copies of your credit reports and scores, but they also alert you when any changes (such as a name change or a new line of credit) appear on your credit reports. They are especially helpful during major life transitions — weddings, divorces, deaths, births, starting school or the purchase of a home or car — which demand filling out large amounts of paperwork (that can increase your odds of identity theft) as well as create opportunities for errors to appear on your credit report, since they change your life circumstances. If credit monitoring isn’t something you’re willing to pay for, it’s important to note that some services like Credit Karma provide minimal monitoring for free, although it’s not nearly as thorough as some of the top-rated services, which provide you with all three credit reports and scores, like Identity Guard or FreeScoresAndMore.
3. Consider credit repair. Once you’ve spotted some errors on your credit reports, you may want to enlist the help of a credit repair service to help you report and remove the errors. If you decide to do it on your own, you can independently send disputes to both credit bureaus and the lender(s).
Follow our credit report monitoring blog to learn more ways to stay in sync with your credit reports and scores.
Disclaimer: This content is not provided or commissioned by the companies referenced in this article. Opinions expressed here are the author’s alone and have not been reviewed, approved or otherwise endorsed by the companies mentioned. NextAdvisor.com may be compensated through advertiser affiliate programs.