By Andrew Housser
One in five consumers found at least one potentially major error on their credit reports, according to a recent Federal Trade Commission (FTC) study. Once disputed, these mistakes were corrected. As a result, credit scores improved. But if these consumers had not checked their reports, the misinformation could have plagued them for life.
A credit report is a detailed listing of your entire debt payment history, including creditors, loan amounts, highest balances, available credit, missed payments, and whether the account is open or closed (and who closed it) or in default. The three major credit bureaus -- Equifax, TransUnion and Experian -- use the data in credit reports to determine individual credit scores. Credit scores can range between 300 and 850. The higher the number, the better. Lenders use the score to determine interest rates for mortgages and auto loans. Prospective landlords, employers and insurers frequently refer to credit reports. Errors on credit reports also can be a red flag that a person's identity has been compromised by fraud or theft.
For all of these reasons, it is imperative to check reports for accuracy at least once a year. To do so, follow these steps:
1. Request your credit report
The Fair and Accurate Credit Transactions Act entitles you to a free copy of your credit report every 12 months from each of the three major credit bureaus. Annual Credit Report is the only website authorized by the FTC to provide credit reports. Created by the three national credit bureaus, this site enables you to pull a free "tri-merge" credit report from all three bureaus. By law, you can receive one free copy of your report from each of the nationwide consumer reporting companies every 12 months. You can obtain additional credit reports for a fee at any time.
2. Confirm identifying information
Do not assume that your personal information is correct. Check the accuracy of your name, address, date of birth, Social Security number and employment history. To guard against identity theft, carefully review the section for "aliases," which could include your name with or without a middle initial, and maiden name.
3. Check credit history.
The bulk of your credit report consists of details about every credit account you have had, with information about the lender, how much you owe, whether the account is current or past due, whether it is open or closed, and other status information. This includes accounts opened in your name, as well as those that list you as an authorized user, such as a spouse's credit card. Your credit history covers mortgages, revolving accounts (such as credit cards) and installment accounts (such as loans). Again, review the entire section carefully, ensuring that each account belongs to you and that all information is correct. Pay off any past due accounts as soon as possible.
4. Review public records section
Here, you will find information about public financial records such as bankruptcy judgments, liens and overdue child support. A serious financial problem can remain in this section for seven to 10 years. Check it carefully for accuracy.
5. Dispute errors
If you find a mistake on your credit report, send a letter via certified mail to the creditor and the credit bureau requesting the item be corrected or removed. Clearly identify each item that you are disputing (you can enclose a copy of your report with the items in question circled). Explain why a correction is warranted. You can find a sample dispute letter on the FTC's website. It is up to the creditor to investigate your complaint and report the results to the credit bureau within 30 days. If there was an error, the creditor must request corrections from all three credit bureaus. You can ask the creditor to send correction notices to anyone who received your report in the past six months. If an investigation does not resolve your dispute, you can draft a statement of dispute and ask the bureau to include it in your file and in future reports.
In the FTC report, four out of five consumers who filed disputes were able to correct and modify their credit reports. More than 10 percent saw a positive change in their credit report after errors were corrected. Since inaccurate information can have a significant impact on your ability to get credit, and affect the interest rates that creditors charge, it pays to pay attention to your credit report.
Andrew Housser is a co-founder and CEO of Bills.com, a free one-stop online portal where consumers can educate themselves about personal finance issues and compare financial products and services. He also is co-CEO of Freedom Financial Network, LLC providing comprehensive consumer credit advocacy and debt relief services. Housser holds a Master of Business Administration degree from Stanford University and Bachelor of Arts degree from Dartmouth College.