According to a
recent report by the FTC, 26% of credit reports contain an error, but 95% of those errors do not
affect on the individual's credit score. However, the report also
notes that what may impact a credit score can vary from report to report.
If someone is on the cusp between two different scoring "brackets,"
then it is possible that a slight shift in score would affect the individual's
ability to obtain new credit. On the other hand, if someone is in the
middle of a bracket, then a slight shift in the score may not affect the
individual's ability to secure new credit.
In addition to possibly preventing an individual from obtaining new credit,
credit scores can also affect insurance premiums and the cost of credit
that is issued. For example, a borrower with a better credit score will
likely receive a lower interest rate on an auto loan, while a consumer
with significantly worse credit may still get an auto loan, but with a
much higher interest rate. This means that the person with the lower credit
score will ultimately pay more for the credit issued than the person with
the higher credit score.
The report also doesn't seem to take into account the cumulative effect
of errors, in particular given the difficulty that consumers have correcting
their reports. As
60 Minutes recently reported, its own investigation demonstrated that most consumers are unable to
get errors on their reports corrected.
Quite simply, as errors pile up on a report, they may have a cumulative
effect that can turn a small decline in credit score to become a major
drop in credit score. Some of the difficulty in repairing a credit report
comes from the rather Byzantine process required by the Fair Credit Reporting Act.
Although consumers are allowed to register disputes online, it is very
rare that an online dispute is fully addressed by the credit bureau. Additionally,
it would appear that the FCRA requires consumers to go through the red-tape
process of disputing an error with the credit bureau before they have
a cause of action against the bureau or the creditor reporting the incorrect data.
In general, the most effective way to repair a credit report is to dispute
the error in writing and include as much supporting evidence as possible.
The more detail that you provide the credit bureau, the more likely it
is that the person reviewing your dispute will pay the proper care and
attention to your dispute. If there is very little information provided,
then it is very easy for a credit bureau employee to write off the dispute
as unfounded, or to simply accept the creditor's assertion that the
information is correct. Additionally, a detailed letter that receives
a short shrift response generally indicates that the credit bureau failed
to adequately investigate the dispute, which can give rise to civil liability.
All told, it is nice to see the FTC releasing some reports that reaffirm
what many consumer defense attorneys have believed to be true for quite
some time. Given that the
Consumer Financial Protection Bureau has been very active since it was established, we may just see some meaningful
regulatory activity yet.