Your financial prospects heavily rely on an accurate credit score. Sadly, errors in credit reports can hinder your ability to secure loans, mortgages, and even employment. The consequences are far-reaching, impacting various aspects of your life. This article delves into the prevalence of credit report inaccuracies, highlighting their influence on individuals. Fortunately, there are legal safeguards in place. Learn about how these inaccuracies affect you and the legal solutions available to rectify them.
What is a Credit Report Inaccuracy?
While a credit report inaccuracy could result in a bad credit report, a credit report inaccuracy is not the fault of the subject of the credit report. When we talk about credit report inaccuracies, we are talking about mistakes made by the three major credit bureaus (TransUnion, Experian, Equifax, and together, the “Bureaus”) or creditors or created by an identity thief. These mistakes can be:
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Mistakes related to your personal information: These are mistakes associated with your name or SSN, often the result of accounts or debt belonging to someone with a name like yours being attributed to you, accounts resulting from identity theft, or simple spelling mistakes.
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Mistakes related to account status: These are inaccuracies caused by closed accounts being misidentified as open, false late payments, and inaccurate account ownership information.
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Mistakes related to account balances: These inaccuracies are created by incorrect account balances and credit limits.
The effect is the same whether an inaccuracy occurs because of mistaken identity, a data entry error, or a failure to update information. Potential lenders see the information, do not know that it is inaccurate, and as a result, consider you and your loan or credit application differently. In other words, your creditworthiness is diminished.
What is the Impact of a Credit Report Inaccuracy?
According to Legalscoops.com, in a recent study, the Federal Trade Commission (“FTC”) found that approximately one in five people have at least one error on at least one of their credit reports. In other words, approximately 20% of people are being impacted by someone else’s error. Those impacts include:
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Lowered Credit Score: One of the most prominent and significant effects of an inaccuracy on your credit report is a lower credit score than it should be. The Bureaus calculate credit scores from credit report information. Any inaccuracy or incorrect information can lead to a lower score, affecting your ability to obtain loans or credit in the future. This often results in denying a loan or financing at favorable interest rates.
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Higher Interest Rates: Denial of a loan or financing at favorable interest rates does not necessarily mean denial of a loan. Often it means a higher interest rate for the loan or financing for which you were applying, thus increasing the cost of borrowing money. But, it makes things more expensive. When you consider that people seek loans and financing for things that cost a sizable amount of money, an increase of a percentage point or two in the interest rate over any number of years, the increased cost is significant.
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Denial of Loans: Some inaccuracies are extensive enough to prompt lenders to deny the loan. Lenders consider all aspects of your financial history when deciding whether to approve a loan application, and they may view any inaccuracies as a red flag warranting a denial. The cost of this is immeasurable.
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Denial of Employment: Employers often run background checks on applicants before hiring them. These background checks include an examination of credit reports. An error on this report could lead the employer to believe that you are less reliable, less astute, and less savvy than other candidates, resulting in job disqualification. This results in immeasurable lost wages, income, and unquantifiable reputational damage.
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Personal Turmoil: Any of the above financial scenarios can take a substantial physical and emotional toll on you. The denial of a loan and the opportunities such loans afford can leave you feeling overwhelmed, anxious, stressed, and depressed. Studies link the mental strain of this situation to difficulty sleeping, high blood pressure, reduced cognitive performance, and loss of self-confidence.
What Should You Do If You Detect an Inaccuracy on Your Credit Report?
To detect an inaccuracy in your credit report, you have to review your credit report. You should do this with some frequency. Recognizing this, the Fair Credit Reporting Act (“FCRA”) mandated that each credit bureau give you one free credit report per year. During the pandemic, the credit bureaus provided free credit reports weekly. As of this writing, free weekly crest reports are still available. You must request these and can do so on each of the credit bureaus’ respective websites. You should review the entire report for accuracy, as errors can be present anywhere from account amounts to personal information to payment dates and loan status.
If you find any inaccuracies, contact the relevant creditor or bureau to dispute any inaccurate information. You can write a dispute letter that identifies the issue and includes supporting documentation. Under 15 USC 1681(i) of the FCRA, credit reporting agencies must investigate and respond to consumer disputes regarding inaccuracies in their credit reports. This investigation includes contacting the source of the inaccuracy, typically the creditor. The credit bureau must promptly remove or correct the disputed item if the creditor confirms the information is inaccurate or cannot be verified. If a credit bureau neglects or refuses to fulfill these obligations under 15 USC 1681(i), it can face legal consequences.
If you do not receive an appropriate response from the bureau, Consumer Attorneys have experience representing people whom a credit report inaccurately has wronged. People who have been wronged by the credit bureau’s failure to respond to a dispute appropriately may be entitled to damages. These can include compensation for actual damages for their financial losses, punitive damages in cases of willful noncompliance, and attorney’s fees.
Credit report inaccuracies can have a serious effect on an individual’s health - financial, emotional, and physical. It is essential to take proactive steps to address any potential inaccuracies. These steps include regularly reviewing credit reports, disputing any incorrect information, and taking action to hold people accountable. The whole reason credit reports exist is to minimize risk for lenders. Credit bureaus make a lot of money by selling their reports about you to these potential lenders; the least they can do is ensure your information is accurate. Their failure to take those steps should not result in negative consequences. Even more, their failure to correct their mistakes warrants liability on their part.