You can do everything right and still get a bad credit score because it was damaged by an annual credit report error. Many people don’t take advantage of the free access to their credit report once a year before they are shocked by unfavorable terms on their next financial application.
How Likely Am I to Experience an Annual Credit Report Error?
More than likely. According to a recent investigation by Consumer Reports, a non-profit organization established since 1936 that protects the interests of consumers, 34% of Americans have experienced an annual credit report error.
Of these, 29% found errors in their personal information. Even something as simple as wrong address information can make it difficult to verify their identity during employment and tenancy screening. It can also make it more difficult to access their credit scores if the security information doesn’t match.
Further 11% found errors in their account information. They saw accounts and debts they did not recognize, payments reported late that were made on time, or non-payments that they knew had been made.
Of all participants, 15% reported that their accounts in forbearance – mandatorily postponed or reduced payments due to COVID-19 – were not being reported as “current”. This is in violation of crisis legislation under the Coronavirus Aid, Relief, and Economic Security (CARES) Act 2020.
Then 10% reported how they found it “difficult or very difficult” to access their credit reports due to cumbersome online interfaces or the credit bureaus doing their best to trick people into subscribing to their paid services when trying to access “free” services under their right to view their own credit score.
These findings are consistent with an earlier 2012 Federal Trade Commission study on credit reporting accuracy which saw that 21% of consumers had at least one verified error in their credit report that was corrected, and 5% had errors so significant they were put on a different credit risk tier.
Why Do Credit Report Errors Happen?
Annual credit report errors are inevitable due to how credit reporting is managed in the first place. All data given to the nationwide credit reporting bureaus are supplied by creditors and data furnishers. Although a data furnisher is not obliged to share your financial data, most organizations that deal with financial services do so, and all this data is collected and prepared by the credit bureaus into your free annual credit report.
If they do report information then they are required by law to furnish accurate information. All provided reports must be backed up by records.
Data furnishers include banks, insurers, employers, landlords, real estate agencies, data collection agencies, utility companies, and court public records.
Unfortunately all this data entry means that someone is going to make a mistake somewhere. It could be as simple as human error, an automatic system that aims to keep debts going for as long as possible, or worse yet – a case of financial fraud or identity theft.
Just as you always have the right to have free access to your financial records, you also always have the right to challenge your annual credit report errors.
What is the Most Common Annual Credit Report Error?
The most common annual credit report error deals with inaccuracies in personal information.
While this does not sound as dangerous as inaccurate entries in your accounts, this can still have serious consequences that can impact your credit score.
Some credit report errors are entered into individual files or groups of files when data from one account is entered into another account by mistake. An error such as a misspelled name or a wrong address can lead into a mixed file.
What is Data Mixing?
The most probable cause of annual credit report error is when data from one account is mixed with that of another similar-sounding account.
The Federal Trade Commission study showed that 35% of consumers that found an error in their annual credit report also reported that they found an item or account that did not belong to them.
These account matching errors can result from bad data entry and insufficient identifying information provided from data furnishers, changes in names and marital status, two people being related or sharing an address, or having too similar names or social security numbers.
These errors can significantly affect someone’s credit score and their ability to verify their identity with credit report agencies, and their access to affordable credit and employment opportunities, and insurance.
What Causes Line Items That Don’t Belong?
The most feared annual credit report error is having debts and accounts that don’t belong to you on your file. This may be as simple as an accident due to file mixing, or you may have been the victim of fraud.
The Federal Trade Commission found a significantly higher proportion of mixed file errors in consumers that have collection account disputes, with over 80% reported having a collection item that did not belong to them or should have been already dealt with.
Can Software Cause Annual Credit Report Errors?
Data furnishers and debt collectors can be the unintentional source of errors. Any mistakes done at the furnishing level will affect all data held by credit bureaus and then impact any decisions based on said data.
Mistakes from old software or failures in administrative procedure don’t affect consumers on the account level, but can affect millions of existing accounts all at once.
Could a Data Furnisher Make Deliberate Errors?
They can. Whether it is by inattention or malicious intent, data furnishers are the primary source of most annual credit report errors.
For example, in 2015 the Consumer Finance Protection Bureau ordered CarHop to pay a 6.4 million penalty for jeopardizing its consumers’ credit. CarHop and its associated data furnishing entity, Universal Acceptance Corp. allegedly had “had no written policies and procedures regarding the accuracy and integrity of the consumer information it furnished”. Consistent rules and procedures matter the most for handling consumer data, but there for the most part the rules were not written down, were not sufficient, or simply did not exist.
CarHop was penalized for deceiving consumers that they could build up “good credit” with them and only report positive information to credit reporting companies. This was appealing to those who wanted to build up credit profiles with a history of on-time payments. Unfortunately, not only did CarHop fail to furnish positive information – they inaccurately reported on numerous occasions that cars returned had been repossessed or that the consumers still owed money.
They provided damaging, inaccurate consumer information to credit reporting companies.
Another example is a 2018 action against State Farm Bank, a federal savings association headquartered in Bloomington, Illinois. The CFPB asserted that State Farm violated the Fair Credit Reporting Act many times by “obtaining consumer reports without a permissible purpose; furnishing to credit-reporting agencies (CRAs) information about consumers’ credit that the bank knew or had reasonable cause to believe was inaccurate; failing to promptly update or correct information furnished to CRAs; furnishing information to CRAs without providing notice that the information was disputed by the consumer; and failing to establish and implement reasonable written policies and procedures regarding the accuracy and integrity of information provided to CRAs.”
Debt collectors also furnish information about the credit status of consumers, and any mistakes inadvertent or deliberate can be very damaging to the consumers in question. The nature of debts handled by debt collectors mean that many lack information to challenge claims of debt nor take appropriate measures afterwards to make sure their credit record does reflect settled accounts. Debt collection agencies are notorious for buying debt on pennies on the dollar and pressuring consumers into paying out in full under legal and economic threats.
From this example, the CFPB filed in 2015 against EOS CCA (EOS), a Massachusetts debt collection firm, for reporting and collecting on old cellphone debt that consumers disputed and EOS did not verify. They were cited for providing inaccurate information to CRAs about standing debts and failed to correct reported information that was disputed and later proven to be incorrect.
The penalty for their misdeeds amounted to refunding at least $743,000 to consumers, to cease collecting and reporting on disputed AT&T debt, to stop collecting unverified debts, to ensure reporting accuracy to credit reporting companies, to stop reselling debts for five years, and finally to pay civil money penalties of $1.85 million to the CFPB’s Civil Penalty Fund.
This case is an example of how if a consumer has disputed the debt and if the data furnishing company is unable to substantiate it, they would be required by law to ask credit reporting companies to remove information about the debt from the consumer’s file.
How Do I Get My Annual Credit Report?
You are entitled to get one free copy of your credit report every 12 months from each of the three main nationwide credit report companies (TransUnion, Equifax, Experian). The only authorized website to get free credit reports is http://www.annualcreditreport.com/.
You will need to provide your name, address, social security number and date of birth to verify your identity.
Is It Easy to Get My Annual Credit Report?
It should be easy, instant, and at no cost to you due to being an online database search. In real experience however, some have it easy, some find it almost impossible to navigate getting to their data due to annual credit report errors in their file. This is where mixed files and wrong identification information can get very annoying.
Credit Reporting Agencies operate with the assumption that their information is correct until challenged, and use that information to verify the identity of the inquirer. Unfortunately, this can lead to people being locked out of their own reports and unable to correct those mistakes in their file.
If you have been involved in a case of identity theft, a fraud alert on your file would entitle you to additional free credit reports. But in doing so you would likely be previously aware of something unusual going on in your annual credit report error.
Consumers are encouraged to use only annualcreditreport.com instead of contacting the Credit Bureaus directly. While they are obliged by law to provide consumers with their annual free credit report, CRA websites have long been criticized for misleading sign up processes that trick or entrap users into signing up for their paid credit reporting services.
How Else Can I Get an Accurate Credit Report?
First, from being able to obtain your report in a timely fashion.
Second, by looking it over carefully for inaccurate or legitimate but old/invalid information that should no longer impact your credit score.
Third, filing to dispute those errors in your file and have them corrected.
You could do these yourself, but “for free” doesn’t mean that it won’t cost you in other ways like time, stress, uncertainty, and frustration. Not many people go for DIY solutions when a professional can just do it faster and more completely.
You may contact a credit repair attorney to handle matters such as these. Annual credit report errors can have long-lasting damaging implications to your financial health. Don’t put off asking for a copy and verifying that your information is valid; that is like leaving yourself unprotected. That your financial information is always correct is never something you can take for granted in a world where debts are valuables to be bought and sold.
Know. Fix. Be sure.