Credit reports can be the key to unlocking favorable interest rates on loans and credit cards, but a single error can slam that door shut. According to Leslie H. Tayne, a personal finance expert and attorney at Tayne Law Group, the cost of an error that tanks your score can be substantial, leading to less favorable borrowing terms. For example, if you are trying to buy a home or a car, loss of access to funding or paying thousands more in interest can be detrimental.
Step 1: Obtain Your Credit Reports
Scouring your credit report for errors is crucial. A study by Consumer Reports estimates that 44 percent of credit reports contain errors. FreeCreditReport.com provides access to reports from Equifax, Experian, and TransUnion. Each report lists open and closed accounts, including credit cards, personal loans, auto loans, mortgages, student loans, and store credit cards. Check each account for mistakes, especially payment history. A single late payment can lower your score by 60 to 110 points, according to The Credit People. Payment history is the most important factor in your credit score, so fixing payment errors can have a big impact.
Common Causes of Errors
- User error: Borrower provides incorrect information.
- Lender error: The firm offering credit incorrectly lists the account.
- Collections agency error: Incorrect information from a collections agency.
- Processing error: Inaccuracies from the company processing a credit application.
Mistakes in names and addresses typically don't hurt credit scores, says Antoine Sallis, CEO of Credit Genius.
Step 2: Identify Mistakes
Review your credit report line by line. Verify every account and pay close attention to payment histories. Payments more than 30 days late can drop a score by over a hundred points, but removing an incorrect late payment can boost your score similarly. Check that all accounts listed are ones you opened or were added as an authorized user or cosigner. Tayne recommends checking credit reports every three months to catch new errors. If your score drops significantly despite on-time payments, check for newly reported late payments that might be incorrect.
Step 3: File a Dispute
Once an error is found, file a dispute with the credit bureau. Online reports usually have a "Dispute" button. The process generally involves clicking the button, selecting the account with the error, identifying the error as an account that doesn't belong to you or inaccurate information, explaining the error, and submitting the dispute. Alternatively, you can mail a dispute using a template from the Consumer Financial Protection Bureau. Send it by certified mail to prove receipt. Credit bureaus typically have 30 days to investigate and five business days to respond. It may take longer if additional paperwork is needed. Follow up a week or two after filing, Tayne advises.
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