Even with all of the fantastic technology available to us today, no system is foolproof. In every industry, mistakes happen. And that includes the companies that produce our credit reports. This blog will help you learn more about your credit report and how to correct credit report errors.
Your credit health is essential to living a happy financial life, so read on to get the facts and learn what to do when you find credit report errors.
What Are Credit Reports?
Have you ever rented a house, bought a car, or taken out a loan? Then you—along with just about every other consumer in America—have a credit report.
Think of credit reports as the story of our relationship with our debt. It details the open accounts you have, how much you owe, and how often you make payments on those amounts.
What Is a Credit Bureau?
Creditors and lenders provide the information found on reports, and the data is compiled and reviewed by credit reporting companies called credit bureaus.
These bureaus are credit reporting agencies in their purest form. They analyze information about our past spending habits and build algorithms to predict how we will behave financially in the future.
The three major bureaus for American consumers are Equifax, Experian, and TransUnion. There are other credit bureaus out there, but these three companies are the ones that most creditors and lenders reference when making financing decisions.
As a debt reporting company, a credit bureau operates under regulations set forth by the Fair Credit Reporting Act (FCRA). This legislation ensures accuracy, fairness, and privacy when handling and sharing personal financial information. The FCRA also guarantees access to your credit report and allows at least one free copy of your credit report from all three major bureaus.
What’s in Your Credit Report?
Your payment history is the record of all of your late and on-time payments to your creditors. Payment history is an essential aspect of your credit report, as it gives potential lenders a clear view of your ability to repay a loan on time.
The best way to protect your payment history is to pay your bills on time, all the time. Creditors and bill collectors typically report late payments that are 30 days or more past their due date. If you think that you will be late with a payment, contact your creditor before the date to work out a repayment plan that can work for you.
Credit Utilization measures the amount of available credit you are currently using. For example, let’s say you have a card with a limit of $1,000. Your balance at the end of the month is $200. That means that your utilization is 20%.
Credit utilization is second only to payment history in the weight it has in your report. It helps lenders determine the level of risk in doing business with you. If your utilization is high, it indicates that you use a lot of credit and fail to pay it back regularly. Experts suggest that you keep your utilization at or below 30% to stay attractive to creditors.
Credit history is the list of all your current accounts. A long history (along with a solid payment history) can show lenders that you can manage a line of credit and are likely to continue that behavior with an additional loan.
Credit history can be a tricky one to manage because your strength here lies in your oldest account. When many people pay off a long-standing debt on a revolving line of credit (like a credit card), they consider closing that account and getting rid of the card. However, getting rid of your oldest account will shorten your history. So when you pay off your card, consider holding onto the card and reducing its use instead of canceling it.
Your credit report will also contain information on each time you apply for a new line of credit. If you are thinking about getting a loan for a big purchase, don’t apply for any other cards or loans before you do it. Each time you apply for credit, the creditor makes an inquiry to one or more of the bureaus into the details of your reports.
When a potential creditor or lender sees a large number of inquiries on your report—especially within a short period—it can signal that you are actively looking for multiple lines of credit and maybe in some financial trouble.
Credit mix refers to the variety of accounts that you have. For example, a good mix would be a car loan and a credit card because they are two different types of credit that you manage in different ways. Maintaining a good payment history across different types is helpful but not critical in maintaining a good report.
Each of these credit report components bears weight on your credit report differently:
Payment History – (35%)
Credit Utilization – (30%)
Credit History – (15%)
New Credit – (10%)
Credit Mix – (10%)
The bureaus then compile the data and calculate your credit score. A credit score is a three-digit number that works as a rating of your creditworthiness, based on the behavior detailed in your report. Credit scores range from 300-850:
- 300–499 Very Bad
- 500–600 Bad
- 601–660 Fair
- 661–780 Good
- 781–850 Excellent
And remember, each of the three major credit bureaus produces a report on you, making it possible to have three different scores. When you begin to monitor your credit regularly, you will also notice that these scores can update at different times.
Having good credit is better than having bad credit. You can get more approvals for loans and credit cards with reasonable interest rates and manageable loan terms with a good score. If you have a bad score, many lenders and creditors may view you as a risk. While good installment loans for bad credit are available, they come with stricter terms than traditional loans.
Because your score determines many aspects of your financial life, your report must reflect accurate information.
How to Fix Errors on Credit Reports
Once you access your credit reports, review each one from the three major bureaus. Each credit bureau has its processes and methods, which can (and will) produce different results and findings. That means that even if one or two credit reports are error-free, it doesn’t mean that the other reports are correct.
Here are the steps you should follow to get credit report errors removed:
Dispute the Information With the Credit Bureau
If you find credit report errors, you can file a dispute—a formal challenge supported with new information. A dispute should be in writing, and explain what the error is and why it is wrong. Your dispute letter should also include your contact information and the tracking or I.D. number for the account in question.
How to Contact the Bureaus
P.O. Box 740256
Atlanta, GA 30348
P.O. Box 4500
Allen, TX 75013
P.O. Box 2000
Chester, PA 19016
Contact The Furnisher
In addition to the credit bureaus, credit experts recommend contacting the company that provided the incorrect information. This company—usually a bank or credit card issuer—is known as a furnisher. Credit reports may also list the furnisher’s address. If yours does, send them a dispute letter as well.
The party responsible for the error is the one that needs to correct it. If you believe that the furnisher is wrong, contact the furnisher directly (in addition to sending the written dispute). Furnishers usually have 30 days to investigate your dispute. If it is their error, they will report that information to the credit bureau.
If the furnisher claims that their derogatory mark is accurate, then the credit bureau will only remove the mark if you can prove that you are not connected to the information at all. Mistaken identity in credit reporting is not uncommon; many people share the same name or lived at the same address at different times. In addition to identity issues, other common credit report errors include:
- Closed accounts reported as active or still open
- Being listed as the owner of an account where you’re only an authorized user
- On-time payments reported as late
- Duplicate listing of accounts
- Incorrect account balances
Review the Investigation
The credit bureaus and any furnishers have up to 45 days to respond to your dispute. Their responses should come in writing and carefully detail the decision and any action.
If the furnisher has supplied incorrect information, they are responsible for notifying all three major credit bureaus and correcting the error on your credit report. If the credit bureau is at fault, they are responsible for making the corrections. In either case, it is ultimately your responsibility to make sure that these issues are corrected—so keep an eye on your report!
Even after you find and resolve any errors on your report, a diligent review of your credit report every few weeks will help you avoid missing future errors.
When Credit Report Errors Aren’t Errors
As you go over your credit report, you may find a negative mark on an account that is, in fact, your fault.
If you can’t prove that an error occurred, the credit bureau will keep the information on your report. The bureau’s job is to provide accurate information about your credit history, so you can’t negotiate or plead away a negative item.
Under the Fair Credit Reporting Act, negative information can only stay on your credit report for a specific amount of time. Most negative information, like delinquent accounts, will fall off after seven years. Bankruptcy is the exception; most bankruptcies remain on a credit report for up to ten years. However, that time it stays on your report lessens if the bankruptcy is the only negative mark. Fortunately, any positive information stays indefinitely.
You can also monitor your score regularly online. You can set up a user account on the websites of each of the major credit bureau. There are also tons of online services, like creditsesame.com, that will give you free access to your report and help file disputes.
When it comes to managing your finances, you can’t outsource the job. Review your records for errors on your credit report before applying for new credit.
Your report is the meter that displays your financial health to the world. Because of that fact, your report must reflect the hard work you put into managing your debt carefully and responsibly. And to handle negative points on your report that are no errors, start building good financial habits, like paying bills on time and learning how to manage a credit card wisely. When you take control of your finances, you will see improvements.