In a recently released Federal Trade Commission (FTC) report, researchers found that approximately 5 percent of U.S. consumers had errors on one of their three requested major credit reports. Those errors which are deemed “significant” can possibly affect potential auto loans or insurance costs, resulting in less than favorable loan terms if you, the consumer, don’t notice the mistake/s in time.
Thus, it’s imperative for you to request credit reports from the three big credit reporting agencies — TransUnion, Experian, and Equifax — on a yearly basis. Search for any potential errors to be found within, and if there are, you should report them to the responsible credit reporting agency.
By being vigilant with your credit report — and any errors within — you will make sure your credit history is both accurate and up-to-date. Thus, the potential for mistakes resulting in poor loan terms or higher insurance costs will be mitigated by taking those extra few moments to review your report.
Just the Facts
The FTC report examined the pertinent groups involved in credit reporting and scoring process:
- Consumers
- Lenders/data furnishers — Including lenders, creditors, debt collection agencies, and the court system
- Fair Isaac Corporation — They develop FICO credit scores
- National credit reporting agencies (CRAs)
So, what did the FTC find in their 8-year-long study, you ask? Well, 1 in 5 consumers had an error on at least one of their three credit reports. In addition:
- 1 in 4 consumers found errors on their reports that could potentially affect their overall credit scores
- 1 in 5 consumers had their error corrected by a credit reporting agency (CRA) after they disputed the error successfully
- 4 out of 5 consumers who filed disputes witnessed some form of modification to their overall credit report
Response to FTC Study Mixed (Depending Upon Who You Ask)
Overall, 1,001 participants took part in the study, reviewing a total of 2,968 credit reports with the help of a study associate. This associate helped participants to identify potential errors/mistakes within their credit reports. The flagged reports were sent off to Fair Isaac (FICO) for rescoring, according to the FTC report.
While there has been some back and forth between the FTC and credit agencies as to the overall validity (i.e.: accuracy) of the results, most have found the data to be telling. According to USA Today, the group consensus — from both consumer groups and the credit agencies — was a mostly positive one, if not slightly divisive for the parties involved.
According to Denise Norgle, vice president of government relations at TransUnion, the FTC findings, “…tell an accurate story.” CNBC.com reported that the trade group for the CRAs said the study found that credit reporting, on a whole, was extremely accurate. According to the CRA trade group, 95 percent of consumers were unaffected by errors found within their credit reports.
The Reality of the Study
So, what’s the reality, you ask? While 21 percent of the FTC study participants found inaccuracies on their credit reports, the impact of these “errors” were generally negligible (i.e.: had no impact on credit, loans, mortgages, etc.).
According to John Ulzheimer, though, president of consumer education at SmartCredit.com, there are still potentially tens of millions of credit reports consisting of errors that run the gamut from large (significant) to small (insignificant). Thus, for a small number in the real world, these reporting errors can potentially create worse rates on loans, mortgages, and insurance, specifically for you.
How Does It Affect You?
The results of the study make clear that consumers need to be ever vigilant when it comes to checking their credit reports and understanding their proper credit history.
What’s important to note is that consumers who request their free annual credit reports — and find any errors within their specific reports — will have the opportunity to work with the credit reporting company to fix these errors, according to Charles Harwood, the Acting Director of the FTC’s Bureau of Consumer Protection.
To learn more about getting your free credit report once every 12 months, head over to the FTC Consumer Information page. Per your request, each of the three nationwide credit reporting agencies — TransUnion, Experian, and Equifax — will send you a free copy of of your credit report once every 12 months. Understand your reports and you’ll be on your way toward a brighter financial future!
This article was contributed by Chase Sagum. You can read more of his contributed articles @ lexingtonlaw.com
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