Money Talks, So Should You

How (and why) to handle credit report errors

Brian O'Connell
by Brian O'Connell, MainStreet contributor

You may now know it, but you could have an error on your credit report that would result in your paying more for a home, credit card or car.

Says who? Says Uncle Sam, in a report out this week.

According to the U.S. Federal Trade Commission, 5 percent of Americans have mistakes on at least one of the three major credit reports — Experian, TransUnion and Equifax — that could cost them more for major purchases.

Furthermore, 20 percent of U.S. consumers have a mistake on their credit report that may not trigger an immediate decline in their credit scores but could hurt their scores down the road.

Credit scores are the ultimate kitchen table economist issue. Let unattended, those errors could really hit Americans where it hurts  in the wallet.

“These are eye-opening numbers for American consumers,” says Howard Shelanski, director of the FTC’s Bureau of Economics. “The results of this first-of-its-kind study make it clear that consumers should check their credit reports regularly. If they don’t, they are potentially putting their pocketbooks at risk.”

READ: How safe is your money?

Here’s a snapshot of relevant points from the FTC report:

  • 25 percent of U.S. consumers found errors on their credit reports that could crimp their credit health.
  • 20 percent of consumers had an error on their credit report that was corrected by the credit agency after the mistake was disputed.
  • 80 percent of consumers who filed disputes had the mistake “modified” by the credit report agency.
  • 5 percent of consumers had a maximum score change of more than 25 points, and only one in 250 consumers had a maximum score change of more than 100 points.

"Credit reports play a crucial role in determining consumers' financial discipline and responsibility," says Howard Dvorkin, CPA and founder of Consolidated Credit. "Detecting credit report errors allows consumers to correct inaccurate information that could potentially lead to denied loans and high interest rates."

Dvorkin advises consumers to check their credit report every 90 days — credit reports are free through annualcreditreport.com, FTC officials note — and contact the credit bureau right away to fix a mistake. That’s especially important before buying a home, car or applying for a credit card or insurance policy.

READ: 20 small ways to save big

To tackle low credit scores, he says, consumers should call creditors and negotiate a lower interest rate. Somewhat surprisingly, creditors are receptive to a lower rate if they think it will help them collect their debt more quickly.

Consolidating credit card debt is another good way to bump up your credit score, Dvorkin adds. That makes it easier to pay down debt and increase the average age of revolving credit lines, which can help the credit utilization ratio.

Managing your credit health doesn’t have to be a full-time job.

Only an hour or two per month can mean the difference between a good credit score, and lower interest rates on big purchases, and a lower score that could add more to your debt burden.

 

Brian O’Connell has 15 years of experience covering business news and trends, particularly in the financial, health care and career management sectors. He has written 14 books and appeared on CNN, Fox News, CNBC, C-Span, Bloomberg, CBS Radio and other media outlets and in such publications as The Wall Street Journal and The Street.com. He is a former Wall Street bond trader.