Millions of Americans may know just how important their borrowing history is to their ability to obtain affordable financing, but many may be plagued by issues they don't even know about as a result of errors that may appear on their credit reports without cause.
Recent data from the Federal Trade Commission shows that about one in every 20 Americans have errors on the credit reports issued by at least one of the nation's three largest credit bureaus, and that these issues could lead them to pay far more for all types of loans and insurance policies. About 25 percent of the consumers who discovered errors on their credit reports in the course of the study said that these would likely alter their credit scores, and about 20 percent said that after the issue was discovered, it was resolved by one of the three major bureaus, indicating a gap may still remain between identification and resolution of these issues.
Once these were reported, 80 percent said there was a modification to their credit report, while a little more than one in 10 saw changes related to their credit scores after the issue was brought to bureaus' attention. Finally, about 5 percent saw their scores change by 25 points or less, and one in every 250 saw them change by more than 100.
"These are eye-opening numbers for American consumers," said Howard Shelanski, director of the FTC's Bureau of Economics. "The results of this first-of-its-kind study make it clear that consumers should check their credit reports regularly. If they don't, they are potentially putting their pocketbooks at risk."
Why is this important?
A person's credit history can alter everything from his or her ability to obtain the credit he or she desires, to the amount paid for it. For this reason, consumers should be acutely aware of just how a diminished score, whether it came about as a result of errors on their reports or because they have simply mishandled their credit in the past, will affect them going forward, and what they can do about the issue.
Some of the most common reasons why consumers' credit scores may be low is that they've missed payments in the past, or that the debt loads they're carrying are simply outsized for their limits. These two factors alone make up 65 percent of one's scores, and as such if anything was reported to any of the major credit bureaus incorrectly, then the issue can be rather serious. For instance, payment history comprises 35 percent of scores, and if one creditor incorrectly reports that a borrower missed a single payment, then that person's credit ratings could take serious tumbles.
The same is true of lenders misreporting debts. That makes up another 30 percent of ratings, and as such, if a financial institution transposes numbers in a person's obligations and that ends up with them allegedly owing more than they actually do, it can do massive damage. In general, the best way to max out this portion of one's scores is to keep balances to 30 percent or less of total available credit limits, and anything above that level will diminish ratings as a consequence.
What should be done about it?
Again, the best way for consumers to determine whether these issues are affecting them is to order copies of their credit reports with regularity and check them over closely for anything that looks awry. Federal law allows borrowers to order copies of their reports from the major bureaus, free of charge, once per year each. Staggering the ordering of these documents throughout the year may give borrowers the ability to stay more on top of their situations, but if any errors are discovered in this process, it may be wise to order the other two as well, if possible, to determine that the unfair markings on one haven't shown up on the others since they were last checked.
By reviewing these documents and comparing the information contained on them with their latest bills and other financial statements, consumers will likely be able to identify these problems before they can do more significant damage to their credit reports going forward.
However, in some cases, this may be a little more difficult, and as such, it might be wise for consumers to contact a credit repair law firm about the situation. These companies may be able to resolve the issues with greater expediency than average borrowers might have been able to achieve on their own, and that can help to put them back on the right path in a shorter amount of time.