Fixing errors on one’s credit report may not be as easy as calling up a credit bureau and asking them to change it, according to an article on the Wall Street Journal website. The article referred to a Federal Trade Commission survey where one out of four credit reports contained “material mistakes” that should not have been there at all. Just over a thousand people reviewed credit reports from the three main credit bureaus and over 25% found errors on at least one report. From this group of people, just over half experienced a credit score change from the errors. Some worry that these errors, such as erroneous late payments or missed payments, can have costly repercussions in the form of higher interest rates on loans.
The System for Removing Errors is Inadequate
While there are ways to fix credit scores over time, removing errors from credit reports is notoriously difficult. According to another article on WSJ, the credit-reporting companies do not always do their part. The biggest stumbling block seems to be the way they handle consumer complaints. A report from the Consumer Financial Protection Bureau stated that the credit-reporting firms use a computer coding system to relay consumer disputes to the requesters of the credit report, such as a bank or collection agency, instead of passing along actual information about the dispute. The report implies that this mishandling of consumer disputes may be the reason fixing errors on credit reports is so difficult.
Preventing Errors Before They Happen
Error prevention by monitoring your credit score is one option that some choose, the WSJ points out, to keep an eye out for errors or potential dangers like identity theft. Credit monitoring can help some people sleep at night, but credit monitoring services tend to charge upwards of $100 per year.
There are other self-monitoring options, but they require diligence and attention. Fishy bank transactions and fluctuations in a person’s credit score can be indications that an error may have slipped into a credit report. Since everyone is entitled to one free credit report per year, it is easy enough to obtain a copy to look for errors or potential identity fraud.
Improve Credit by Getting Credit
If credit-reporting firms are not able to remove errors from one’s credit report, the WSJ provides long-term methods of improving credit. Perhaps counter-intuitively, people with high credit scores typically have four loans or credit cards that they make regular payments on. Having good credit means the proven ability to pay off debt, not being debt-free. Too much debt obviously hurts a credit score, so it is best to have a certain amount of unused credit. “Credit utilization,” which makes up 30% of a person’s credit score, should generally be no more than one-third of the total available credit. A track record of proven, perfect payment history will help increase a person’s credit score over the long run.
Unfortunately, the credit bureaus’ consumer dispute process makes it difficult to remove errors from a credit report. Even if a consumer submits documentation disputing an error, lenders who request a credit score only receive computer codes documenting the dispute. This leaves the option open for an individual or a credit monitoring service to watch for errors, and diligent long-term efforts to rebuild credit if errors already exist.
The author of this article is Nicole Johnson, a credit editor and expert at bestcreditscorecompanys.com.