Five percent of consumers had errors on one of their three major credit reports that could lead to them paying more for products such as mortgages, auto loans and insurance, according to a new study.
Overall, the congressionally-mandated Federal Trade Commission (FTC) study on credit report accuracy found that one in five consumers had an error on at least one of their three credit reports.
“These are eye-opening numbers for American consumers,” said Howard Shelanski, Director of the FTC’s Bureau of Economics.
“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.”
Errors impact credit scores
The study, in which participants were encouraged to use the Fair Credit Reporting Act (FCRA) process to resolve any potential credit report errors, also found that:
- One in four consumers identified errors on their credit reports that might affect their credit scores.
- One in five consumers had an error that was corrected by a credit reporting agency (CRA) after it was disputed, on at least one of their three credit reports.
- Four out of five consumers who filed disputes experienced some modification to their credit report.
- Slightly more than one in 10 consumers saw a change in their credit score after the CRAs modified errors on their credit report.
- Approximately one in 20 consumers had a maximum score change of more than 25 points and only one in 250 consumers had a maximum score change of more than 100 points.
“Your credit report has information about your finances and your bill-paying history, so it’s important to make sure it’s accurate,” said Charles Harwood, Acting Director of the FTC’s Bureau of Consumer Protection.
“The good news for consumers is that credit reports are free through AnnualCreditReport.com, and if you find an error, you can work with the credit reporting company to fix it,” Harwood added.
The FTC report is the first major study that looks at all the primary groups that participate in the credit reporting and scoring process: consumers; lenders/data furnishers (which include creditors, lenders, debt collection agencies, and the court system); the Fair Isaac Corporation, which develops FICO credit scores; and the national credit reporting agencies (CRAs). It is based on work with 1,001 participants who reviewed 2,968 credit reports with a study associate who helped them identify and correct possible errors on their credit reports.
Consumers in the study were selected to match the demographic and credit score information of the general public, and participants were encouraged to dispute errors that could affect their credit standing. Credit reports with potential errors identified by study participants were sent to Fair Isaac (FICO) for rescoring.
After completing the FCRA dispute process, study participants were provided with new credit reports and credit scores. The original reports were then compared with the new reports. If any modifications were made as a result of the disputes, the impact of errors on the consumer’s credit score was determined.
Congress directed the FTC to conduct a study of credit report accuracy and provide interim reports every two years, starting in 2004 and continuing through 2012 with a final report in 2014. The reports are being produced under Section 319 of the Fair and Accurate Credit Transactions Act, or FACT Act.
Information for consumers
The FTC has a wide range of general information for consumers on credit reporting issues, including Free Credit Reports, Disputing Errors on Credit Reports, and Your Source for a Truly Free Credit Report? AnnualCreditReport.com, as well as a new consumer blog posted titled It Pays to Check Your Credit Report.
It also has information available on how credit scores affect the price of credit and insurance and what consumers need to know about their credit reports when looking for a job. Finally, the FTC has a video for consumers on how to get a free credit report.
Both the FTC and the Consumer Financial Protection Bureau accept credit report complaints.