Fixing an error on your credit report can be time consuming, and not a little frustrating. But with a recent FTC study showing that 26% of consumers could have potentially problematic errors on their credit reports, checking for and reporting errors is more important than ever.
Why Are Credit Report Errors So Common?
While 26% of consumers in the FTC study did, indeed, have “potentially material” errors on their credit reports, mistakes only really affected the credit scores of about 5% of study participants. Still, though, 5% is a pretty large margin of error, especially when it comes to something as important as a credit report.
One of the main reasons that credit reporting errors are common is pure information overload. Just picture the amount of information your average credit reporting bureau has to keep track of – tons of financial information on millions of consumers! It’s really a lot.
When you’re dealing with that much information, simply keeping it all straight requires some pretty sophisticated engineering. And while the major credit reporting bureaus do have sophisticated information systems in place, that doesn’t mean everything is perfect.
Plus, it’s so easy for credit information to be misreported because someone else has a similar name to your own. A single letter added to your last name, an incorrect middle initial, or a transposed digit in a Social Security number can make a huge difference.
Then there’s the issue of identity theft. If someone opens an account in your name, it’ll wind up on your credit report. But that’s not the fault of the credit reporting bureaus, and they won’t know that the account is fraudulent unless you alert them.
The major credit reporting bureaus have been accused of being cavalier with the personal credit information of the average consumer – and maybe they sometimes are – but the reality is that in an imperfect system dealing with tons of information, mistakes are just bound to happen.
Why Should You Care?
Since only 2-5% of cases in the FTC study showed credit reporting errors that would actually impact a person’s ability to get credit, why should you even care? More than likely, after all, there aren’t mistakes on your credit report that will really hurt you in the long run.
Well, sure, you’re most likely not going to see material harm to your credit score because of misinformation on your credit report, but that doesn’t mean that it couldn’t happen. If you have otherwise excellent credit but have one creditor mistakenly report a late payment, your credit score could quickly tank – leaving you scrambling the next time you need to apply for credit.
Also, even minor errors that don’t leave your credit score in the ditch can cause problems when it comes to getting credit. If your name or address isn’t listed properly on your credit report, for instance, you may be subject to more creditor scrutiny when you apply for credit. (Or even when you apply for a new job or an apartment, since a form of your credit report may be used during both of those processes!)
Finally, you should keep a careful eye on your credit report because so-called mistakes on your report may actually signal that you’re the victim of identity theft. Sometimes accounts are simply misreported because a creditor or credit reporting bureau makes a mistake.
But many times, an unfamiliar account on your credit report indicates that your personal information has been used to open up a fraudulent credit account. And not catching this type of theft right away can really come back to bite you in the long run!
How to Fix Errors on Your Credit Report
Fixing errors on your credit report can take time, but it’s not all that complicated of a process.
The first step is to find the errors, of course. You can do this by pulling a copy of your credit report. You’re entitled to one free copy per year from each of the three credit reporting bureaus – Equifax, Experian, and TransUnion. It’s a good idea to pull a copy from each bureau, since each file may have different mistakes in it.
Next, if you find mistakes, you’ll want to fill out the online dispute form for the respective credit reporting bureau. If the error is actually with the creditor who reported the account, you may also need to write a letter to the creditor.
Maintaining your good credit is essential to a healthy financial future. And part of this maintenance is frequently checking your credit report to ensure you catch and correct any errors as soon as possible.
—Abby Hayes is a freelance personal finance writer and contributor for personal finance blog Dough Roller. She spends her spare time bargain hunting for her family of three.