The subprime mortgage crisis fallout which began in December 2006 has thrust the issue of credit into the political spotlight. Lenders provided financing to hundreds of thousands of homeowners who-based on the terms of their agreements-could not realistically pay back their loans.
During one of the many 2008 political news conferences and debates, candidates were talking about the fact that millions who potentially faced foreclosure could not refinance at a better interest rate to save their homes because their credit scores are too low. When asked to weigh in, chills went up my spine when I heard one of the candidates suggest, more or less, that the solution to the crisis would be to stop giving credit to people who do not have good credit.
That would be a reasonable option if there was any guarantee that consumer credit scores were always correct. But in reality, that’s far from the case. And statistics will show you that most mistakes are NOT consumer driven.
The U.S. Public Interest Research Groups (USPIRGs), conducted a 30-state study on the subject of credit scoring, and published their own report: Mistakes Do Happen: A Look at Errors in Consumer Credit Reports. The study revealed that 79% of consumer credit reports contain errors.(1) What’s more, there’s a one-in-four chance your credit report contains an error serious enough to cause you to be denied credit. Not good!
As a credit score expert, I’ve now personally analyzed more than 15,000 credit reports. My company has analyzed thousands more. Why is this important? I can count on one hand those that had zero mistakes! That’s important for you to know because statistics indicate that only 79% of credit reports have errors. My vast experience shows otherwise, with as many as 99% having some sort of error-a misspelled name, a wrong address, an incorrect balance on an account, or an inaccurately reported serious derogatory.
That is why I advise my clients to check their data at the three major credit bureaus, Equifax, Experian and TransUnion, as follows:
- If they are active with their credit, every 6 months.
- If they are not applying for credit and have not received any notifications of unusual activity on their credit watch accounts, then I have them check their data at the bureau level once a year.
As outlined in my book, The Big Score – Getting It & Keeping It, the overwhelming presence of errors in credit reports is devastating to consumers because they are the ones who pay for those errors. In 2008, consumers paid credit card companies $28 billion in additional interest rates and fees due to low credit scores. I wonder how many of those credit scores were based on errors made by the three major credit bureaus, who make billions of dollars a year selling that inaccurate data?
(1) http://static.uspirg.org/reports/MistakesDoHappen2004.pdf
Linda – You’re singing to the choir girlfriend. While I haven’t seen 15,000 credit reports, many of the ones I have seen have had errors on it that were no fault of my client. After more than seven years in the mortgage biz, I have helped many of my clients get some minor errors corrected. With some of the more serious errors, I have advised my clients to get legal advice.
One particular client that had a heck of a time getting credit because of a low score due to an error on his report had to do with child support payments that weren’t getting reported correctly. This poor client spent years and thousands of dollars in legal fees trying to get these errors corrected. It finally got corrected but this guy should have never had to go through what he did and one of the most challenging aspects was getting the bureaus to report the payments accurately.