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New FTC numbers
The FTC now says that 26% of us have material errors on at least one of our three credit reports. Even worse, 5% of all consumers have errors that when corrected, would place them in a different credit score range so they would have lower interest rates on their mortgages, auto loans and credit cards.
Check your credit reports regularly
What this underscores is the need to check your three credit reports regularly. You can get them individually from the three credit reporting bureaus, Experian, Equifax and TransUnion Or you can give them simultaneously and free at the website www.annualcreditreport.com. However, many consumers choose to get their reports individually from the three credit bureaus at four-month intervals so that they can, in effect, monitor their credit reports year around.
Get any errors reversed
If you do find an error in one of your credit reports, you can get it reversed. In fact, according to the FTC, 80% of those who filed disputes over errors saw their credit reports changed.
This FTC study also found that only 20% of us check our credit reports every year. This means that 80% of us are failing to check them regularly. If you fall into the 80%, you may have an error in one of your credit reports that’s costing you money – in terms of the higher interest you may be paying on your credit cards, personal loans, auto loans or even your auto insurance.
How to dispute an error
Let's say that you review your credit report from one of the credit bureaus and find that a lender you don't even recognize reported that you had defaulted on a loan. The Fair Credit Reporting Act (FCRA) mandates that you can dispute this by writing a letter to the appropriate bureau contesting the information. The credit-reporting bureau then has 30 days to contact the company that provided the information and ask for validation. In the event the company can't validate the information it reported or doesn't respond to the credit bureau, that information must be removed from your record.
The effect of erroneous information
It's important to get errors on a credit report corrected because it can have a very adverse effect on your credit score. Lenders generally look at what are called credit score ranges. For example, credit scores between 700 and 850 are considered to be very good or excellent. On the other hand, credit scores between 580 and 619 are in the low credit score range. And anything below 500 would be either poor or bad. This means if your score was sitting at 621 (average or okay) and an error in one of your credit reports dropped it to 618, you would now be seen as having a poor credit score, which could cost you money in higher interest rates.
A bankruptcy is the worst
If you're having a problem with debt, there are a number of ways to handle it. Some will have an effect on your credit score and others won't. As an example of this, if you were to go through consumer credit counseling it would have no effect on your credit score. But a bankruptcy will lower your credit score by as much as 200 points. If you have a low credit score to begin with, this could drop you into the category of bad credit score and make it very difficult for you to get any new credit. In fact, most experts say that this would stop you from getting new credit for two to three years.