Your credit report could contain material errors. These are mistakes that other people make but you ultimately to pay for — and left uncorrected, you may end up paying for those errors for years and years.
According to a recent Federal Trade Commission report, one in five people have flawed credit reports. Not all of these mistakes hurt credit scores, but many do. According to the same study, one in eight people have lower credit scores because of these mistakes.
Since your credit score typically determines what interest rate you pay on your debt, an artificially low credit score means you might pay higher interest than you otherwise should.
Keep in mind that even a tiny point penalty could cost you big. If your score just misses the next highest bracket because of those errors, you’ll be stuck in a lower-rated group and that means higher rates.
In other words, a “minor” mistake that “only” cost you a few points could cost you a lot of cabbage. All told, more than 10 million Americans pay higher interest, are denied credit or loans, or can’t get a job because of these mistakes. Let’s make sure this doesn’t happen to you, too.
Looking for Errors
According to the FTC report on credit report mistakes, report errors include:
- Mistaken collections
- Duplicate entries
- Wrong personal data
- Inquiries that didn’t happen
- Derogatory public records like bankruptcies, judgments, liens and convictions that also didn’t happen
- Mistakes made by credit card companies about missed or late payments that were actually paid on time.
How Much Do Credit Report Errors Cost You?
Depending on the kind of credit or loan you are interested in, the cost could be huge. According to my research, over the life of a 30-year mortgage, you could end up paying $11,000 more interest or more if a credit report error knocks your average FICO score down from a 700 to a 699.
If you are trying to get a new car loan for three years, a similar one-point error will cost you about $700 more interest as of Feb. 15 of this year. That may not seem like much, but it’s almost a 50% increase over what you would have paid had you not had the credit report errors. (You can calculate how much bad credit is costing you over your lifetime with this tool.)
What You Can Do About It
Once you understand how even the smallest mistake could be very expensive, it’s time to get serious about your credit report.
The first step of course is to order your credit reports. You should order all three reports — you can get your credit reports for free once a year from each of the three major credit reporting agencies — at the same time and go through them with a fine-tooth comb.
Look for any items that are clearly reported in error, but don’t stop there. By law, creditors and credit bureaus must correct or remove items if they are inaccurate, unverifiable or incomplete.
Getting Items Removed From Your Credit Report
Removing negative information from your credit report requires patience and persistence. It also requires you to stick to the process. Most sources suggest that you contact the credit bureau only, but you may need to cover your bases. Even though the credit bureau will ultimately be the one to remove the negative information, you will likely need to also contact your creditor to make it happen. If I needed to correct mistaken information on my credit report, I’d write to both the bureau and the creditor simultaneously.
Credit report errors are not unusual and they are not benign. They happen all the time and they can cost you serious bucks. Don’t be complacent. Take the time to order your report and go through it. Identify those items that misrepresent your real credit story and fight to make it right. As you’re working to resolve the problem, and even afterward, it can help to monitor your credit reports for changes that require your attention. You can get a free monthly credit summary from Credit.com to help you spot changes along the way.
More on Credit Reports & Credit Scores:
- How to Get Your Free Annual Credit Report
- How Do I Dispute an Error on My Credit Report?
- How Credit Impacts Your Day-to-Day Life