Is Your Credit Report Holding You Hostage?

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Forty million Americans have errors on their credit reports. Half of them have errors serious enough to affect their credit scores. Credit report errors result in a cascade of negative consequences:

  • Denied credit – mortgage, car loan, credit card, or any other type of financing
  • Less favorable terms – higher interest rates, lower limits, etc.
  • Failure to qualify for a security clearance, or lose one already held
  • Lost job opportunities from being passed over by a potential employer

Until the errors are fixed, those consumers suffer real financial consequences, whether they realize it or not. The erroneous credit reports hold them hostage until they are persistent enough to get results, they hire an attorney or the bad data ages enough to fall off the report.

Common Credit Report Errors

Name misspellings and incorrect addresses are common. Fortunately, these types of errors are minor and have no effect on your score. But when a mistake actually results in a consumer being confused with someone else entirely, the situation is serious and calls for immediate correction. It’s called a mixed file, and it usually happens when two pieces of information, belonging to two different consumers, are similar – same name, or similar social security numbers, birth dates or addresses.

The general feeling among industry insiders is that the credit bureaus err on the side of errors – they’d rather include erroneous negative data on your credit report than mistakenly omit accurate negative data. No matter the reason, mixed files can be extremely difficult to untangle.

What You Can Do

Federal law protects the consumer. You have a right to dispute errors and the credit reporting agencies have an obligation to investigate and remove them.

Monitor, monitor, monitor. Continue to monitor your credit report via a free service like Credit Sesame. The best thing you can do for your credit file is stay on top of it. Know what’s on your reports and attack errors immediately when they pop up.

Request a copy of your credit report from any creditor with whom you apply. If a creditor takes adverse action against you, such as deny an application or offer you a higher interest rate, the creditor is obligated to tell you how to obtain a free copy of the report on which their decision was based.

Check your credit reports for errors and learn the process to dispute them. Each credit reporting agency has a process for disputing errors. Although many disputes can be initiated online while you view your report, reserve the online dispute process for inconsequential errors that are not likely to affect your score. Debts that don’t belong to you and other serious negative items should be disputed in writing, by mail, and separately. Include as much supporting documentation as possible and keep copies of everything you mail. Send your disputes by registered mail or some other service that allows for tracking and proof of delivery. Read more about disputes on the FTC’s website.

Send copies of your correspondence to each creditor reporting an inaccuracy. The 60 Minutes television program reported that the credit bureaus get so many disputes, they streamline operations by declining to investigate each and every one. Furthermore, consumer disputes and supporting documentation are not showed to the creditor reporting the negative item at all. The credit bureau simply tells the creditor that the consumer disputes the item and “says she never pays late” (or some other generic dispute code unaccompanied by support or explanation). The creditor understandably responds that the debt is valid, never knowing about the mixed file or mistaken identity. In cases of “he says,” “she says,” the decision is always in favor of the creditor. Convincing the creditor of your true identity might be the fastest way to get them to report the debt as invalid.

File a complaint with the Consumer Financial Protection Bureau if the errors are not corrected within a reasonable amount of time (in most cases, 30 to 90 days). To date, the CFPB has been extremely good about following up on every complaint they receive. Expect a response.

Hire a lawyer. If you’ve followed the prescribed process for requesting removal of an inaccurate negative item and the credit bureau has failed to comply, you might have a case.

One woman tried in vain for two years to have her credit file untangled from that of another person with a similar name and a poor credit history. She hired a lawyer and in 2013 won an $18.6 million judgment against Equifax (in January, 2014 the damage assessment was reduced to $1.62 million – still not bad).

In June of this year, the Mississippi Attorney General filed suit against Experian for repeatedly failing to ensure that its consumer credit reports are accurate. Experian denies the charge but has since made several major corrections to the credit reports of consumers who hit a wall in their correction attempts. Thirty-three other state attorneys general are investigating the three credit bureaus for their handling of errors.

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Published August 20, 2014 Updated: November 6, 2015
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