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You've done the responsible thing and ordered your free credit report from one of the three bureaus. You look it over; there's a lot to take in! Years of your life in the world of credit all wrapped up in a few pages.
- Personal information, including your name, current and recent addresses, social security number, date of birth, and current and past employers
- Loan information, including student and installment loans, mortgages, and car loans
- Credit cards and lines of credit, including their issuers, account numbers, credit limit, current balances, and date opened
- Inquiries, which is a list of creditors that have checked your credit in the last two years
- Rental information for apartments if your landlord reported it to the bureaus
- Public records, which could be bankruptcies, liens, judgments, and wage garnishments
It's all very official, so it must be correct, right?
Wrong. In fact, a study by the FTC found that one in four consumers found at least one error on their credit reports, errors could adversely affect their credit scores.
How does this happen, if creditors always ask for your social security number when you apply for a loan? Credit reporting agencies have found that using complete social security numbers to match information to a consumer's file can lead to missed information. People make mistakes, and a simple transposition of numbers could mean negative information could fall through the cracks, putting lenders at risk of lending to someone with bad credit. It costs lenders a lot more to lend to someone with bad credit than it does to avoid lending to someone with good credit. Because of this, the bureaus believe it is better to have more, possibly inaccurate information than less information. Therefore, they use partial social security numbers to match an account to a credit file along with names, former addresses, and date of birth. This can result in mix-ups, especially among people with similar names or junior/senior situations with father and sons.
Scrutinize your credit report closely for any inaccuracies. Some of the things that should not be on your credit report are:
Your Credit Score: Credit scores are a tool used by creditors to judge a consumer's creditworthiness, but they should not be on your report.
Unauthorized Accounts: If you find an account that you don't recognize, it could be a sign that your information was mixed up with that of someone else; or, worse yet, you're a victim of identity theft.
Misreported Account Information: There's a lot of room for error here. Look for:
- Late payments that were on time
- Higher balances than you have
- Accounts where you are only an authorized user
- Payments that weren't posted or were posted to the wrong account
- Liens or judgments marked unpaid that have been paid or satisfied
- Incorrect credit limit
- Missing accounts that could show good credit
- Incorrect reporting of transferred accounts showing up as duplicates
One of the most common inaccuracies comes from negative accounts still showing up on your report after they should've dropped off.
- Collection Accounts – Seven years from first delinquency
- Late Payments – Seven years from first reporting of late payment
- Chapter 13 Bankruptcy – Seven years from date filed
- Chapter 7 Bankruptcy – 10 years from date filed
- Paid Tax Liens – Seven years from date paid
- Unpaid Tax Liens – 10 years from date filed
If you find an error or inaccuracy on your credit report, you should first notify the creditor that reported the error. The FTC has a helpful sample letter that you can use to dispute the problem. Make sure you also send copies of any documents that support your claim. The creditor will investigate the issue, usually within 30 days, and if it finds there is a problem, it must notify all three credit bureaus in order to correct your report. You can also ask that the creditor notify anyone who has pulled your credit report in the last six months.
Even though you're notifying the creditor directly, notify the credit reporting agencies as well (TransUnion, Experian, and Equifax) of your dispute using the sample letter found here. They also have 30 days to investigate the dispute. Make sure you also attach copies of your supporting documents with your dispute letter, as well as a copy of the part of your credit report that contains the error. Do not enclose original documents with your letters, only copies.
According to federal law, you are eligible for one free credit report per year from each of the three credit reporting agencies, and you may be eligible for copies if:
- You've been denied credit because of your credit report
- You've fallen victim to credit fraud
- You are unemployed and intend to apply for work
- You receive public welfare assistance
- Your state law allows you to get a copy
Most people don't find out about errors on their credit reports until denied credit. Because it takes time to have the errors fixed, it's usually too late. By reviewing your credit report annually, you can make sure it's accurate and that you won't have any surprises when you need to apply for credit.