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Protecting You From Credit Report Errors, Unreliable Scores

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Aleta from Mena, Arkansas, has had a hard time getting a decent rate on a car loan all because of a mistake on her credit report. The problem started when she received a bill that was caused by a computer glitch and not because of money she actually owed. She tried to resolve the problem but the company ended up turning the bill over to a collection agency and the erroneous charge ended up on her credit report.

Aleta eventually was able to get a letter from the company that she provided to the credit bureaus indicating that the bill was a mistake and should never have been turned over to collections. She even got the collection agency to vouch for her. But the delinquent bill remained on her credit report for many months, preventing her from getting the credit she needed.

Aleta is one of an estimated 10 million Americans with mistakes on their credit report serious enough to result in higher interest rates on loans, according to the Federal Trade Commission. When credit report errors are serious enough to damage a consumer's credit score, the financial consequences can be costly. Consumers may end up paying thousands of dollars more in interest over the lifetime of their mortgage or hundreds of dollars more in auto insurance as a result of such errors.

But credit report errors can cause even more damage. These days, mistakes on credit reports can result in missed job opportunities or even stand in the way of getting an apartment.

Common credit report errors include information on your credit report that might belong to someone else with a similar name or that may be outdated or simply wrong. Errors can be caused by the way credit reporting agencies match files, incorrect information reported by creditors or other data furnishers, or because of identity theft.

At Consumers Union, the advocacy arm of Consumer Reports, our recent report, "Errors & Gotchas: How Credit Report Errors and Unreliable Credit Scores Hurt Consumers", highlighted stories we've collected from consumers who have encountered problems with credit report errors. And just like Aleta, many of the consumers who shared their stories found it incredibly difficult to get the credit reporting agencies to fix mistakes on their reports.

That's because the credit reporting agencies devote limited resources to addressing errors and the investigations conducted by creditors and other data furnishers are often inadequate. Typically, the credit bureaus accept the word of furnishers in disputes, even when they haven't produced any evidence to prove the information is correct.

Consumers also have a hard time getting access to the credit scores that lenders use to evaluate their creditworthiness. Of course, consumers can purchase their credit scores, but chances are they'll end up with a score that's different than what lenders rely on. Instead, credit reporting agencies typically sell "educational" scores to consumers that are rarely used by lenders. Sometimes consumers sign up for what they expect is a free credit score only to be duped into enrolling in costly credit monitoring services. The scores offered through these services are usually different than the ones considered by lenders.

The difference between these scores can be significant. A recent analysis by the Consumer Financial Protection Bureau found that the credit scores used by lenders compared to the scores typically sold by the credit bureaus would put consumers in a different credit reporting category 19 to 24 percent of the time.

Fortunately, help may be on the way. Last week, Senators Brian Schatz (HI) and Sherrod Brown (OH) introduced the Stop Errors in Credit Use and Reporting (SECURE) Act that would require credit bureaus to follow tighter rules for ensuring credit reports are accurate and give consumers free access to reliable credit scores every year.

Credit bureaus are already required to follow "reasonable procedures to assure maximum possible accuracy" of the information on credit reports. But that vague requirement has given them a lot of latitude. The SECURE Act requires the Consumer Financial Protection Bureau to more clearly define the "reasonable procedures" credit reporting agencies must follow to maintain accurate reports.

The legislation also entitles consumers to get their credit scores for free every year when they request their annual credit reports. Under the bill, consumers must be given the same scores that are widely used by lenders to make credit decisions.

Maintaining an accurate credit report is absolutely critical in today's economy. But too often, credit report mistakes can cause real damage for consumers. Policymakers in Washington could make a real difference for consumers by adopting the reforms in the SECURE Act.