On February 11, 2013 the FTC released the results of a study on credit reporting accuracy. Their conclusion is that consumers cannot afford to trust the accuracy of the information assembled by the credit bureaus – and provided to lenders, landlords, insurance companies, etc. in the form of credit reports. The importance of credit repair has never been more clear.
“These are eye-opening numbers for American consumers. The results of this first-of-its-kind study make it clear that consumers should check their credit reports regularly. If they don’t, they are potentially putting their pocketbooks at risk.” – Howard Shelanski, Director, FTC Bureau of Economics
The Big Picture
In brief, 26 percent of the study participants found errors on their credit report; specifically, “One in four consumers identified errors on their credit reports that might affect their credit scores.”
Our Take on Credit Report Accuracy
As dramatic as these numbers sound, it gets worse. The odds of reporting errors increase dramatically if you have had credit problems in the past. In other words, once you have had legitimate derogatory events, your accounts are often moved into an exception status, increasing the odds of reporting mistakes.
The most common instance is the case of a charge-off (of a defaulted account) by a creditor who sells the account to a third party collector, who may resell the account, and so on. Each of these entities can report the account to the credit bureaus. While there are rules meant to protect consumers from experiencing a multiple score impact from a single event, the odds of errors in this chain of events increase with each reiteration of the debt.
Credit Bureaus Frustration Revealed
Also of interest, the study provided fascinating insights into consumer interaction with the credit bureaus. Only 37 percent of the people who disputed information with the credit bureaus said that all of their concerns were addressed, while 63 percent of the people who disputed information were not satisfied with the response and unable to fully correct their errors.
Our Take on the Credit Bureaus
The credit bureaus have a daunting job. They receive billions of bits of data from millions of entities, including creditors, collectors, and public records repositories. The accuracy of a credit report depends on all participants in the system. Many of the errors on credit reports originate with creditors and other reporting entities and are not automatically caught by the bureau software. This fact underlines the importance of consumer vigilance and the need for a clear path to dispute and correct errors.
There is More to Come
Underlining the enormous importance of this issue, there has been another major investigation launched by the Consumer Financial Protection Bureau (CFPB) into the practices of the credit bureaus and their dealings with consumer disputes.
Reporting accuracy is only half the issue. Resolving errors with the credit bureaus is as important. As noted above, 63 percent of the participants in the study were unable to correct their reporting errors. Whether this is due to systemic inadequacies, or the result of illegal actions designed to ignore and discourage consumer attempts to rectify errors on their credit reports, is not clear, but the CFPB investigation should provide some interesting results.
The Moral of the Story
The message here is that consumers need to look out for themselves. It may seem like an odious task on top of the other stress in your life, but it is necessary to check the accuracy of your credit report on a regular basis – and to dispute the errors you find. Proofreading a credit report is not for everyone. To do a proper job you must have some knowledge of reporting rules, reporting period limits, requirements of reporting entities, and the patience to examine everything. Credit repair companies, like Sky Blue Credit Repair, are here to assist consumers who do not have the time, knowledge, comfort, or patience to manage this task themselves or who are concerned with the downside of missing a critical error that may impact their financial life.