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Credit Report Errors Result in Higher Interest Rates for Consumers

Do you have errors in your credit report?  Have you checked?  Credit Report errors could have significant impact on your ability to get a loan, or to get a fair interest rate on a loan.

In a study undertaken by the Federal Trade Commission and released recently, it was found that 5% of all credit reports contained significant errors; serious enough to result in higher interest rates if the consumer applied for credit.  The study found that 20% of all consumers had an inaccurate credit report with one of the three reporting agencies!

The study, which is mandated by Congress under the Fair and Accurate Credit Transactions Act (FACT), was conducted with consumer participants.  They were asked to use the Fair Credit Reporting Act (FRCA) in attempting to resolve credit report errors.  The study found that 25% of consumers found errors; 20% of consumers’ errors were corrected after reporting the errors to the agency; 80% of consumers, after filing disputes with the agencies, were rewarded with modifications to their report; 10% of consumers achieved an enhanced credit score after the errors were fixed; and, 5.2% achieved a 25 point increase in their credit score.

This changes the “risk tier” and enables the consumer to get a better interest rate on a loan. To make these percentages real, it should be noted that the three major credit bureaus have information on approximately 200 million consumers.  They gather information from over 30,000 data providers.  Thus, if 5% are entitled to 25 points on their credit score that is 10 million consumers who could reduce their interest rates!

When examining the study, it was noted that the main type of disputed errors were in consumer collections information.  Fortunately, these were also the most common corrections made by the agencies.  Age was a factor in the percentage of errors.  For folks under 30, the error rate was 15%, 31-4 year olds, the rate was 23%, 41 to 50 year olds24%, 51-60 year olds, 25%, with a drop down to 18% for those over 60.

The level of education seemed to be correlated as well with those who have a high school diploma or less having a 28% chance of having an error in their credit report, while those with some college have just over 20% and those with a college degree just under 20%.

What are the Credit Agencies looking For?

There are five categories of information that the credit agencies gather.  First, general information including name, rank and serial number.  While there are often mistakes in this section, those mistakes do not usually hurt your score.  Second, Credit account information regarding all extended credit, past and present.  This would include credit cards, car loans, mortgages, and any other loans.  Third, public records including prior bankruptcies, foreclosures, judgment and tax liens.  Fourth, actual collections undertaken by a creditor.  And finally, inquiries by subscribers, including lenders, landlords, employers, etc.

I’m Not Applying for a Loan So Why Do I Care?

Credit scores and reports are increasingly used by folks other than lenders, including, but not limited to, cell phone companies, insurance, and landlords.   Employers often look at credit reports.  Unfortunately, it has become an important part of many ways we do business.  So we have to monitor our credit reports and fix the mistakes.

How Can You Fix Your Credit Report?

We have previously written about how to increase your credit score  and we point out that one important attribute of enhancing your score is to write to the three credit reporting agencies to correct mistakes.  And, having documentation regarding the correction goes a long way in convincing them that you are right.

Call Attorney Neil Burns if you need consumer assistance with a credit report or if you need a free consultation regarding filing for bankruptcy:  617-227-7423.

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