How Often Are There Errors On A Credit Report? All The Damn Time!

Lion of Lucerne MonumentThe Oregon lawsuit awarding a woman $18.6 million in punitive damages from Equifax is a big reminder why we should check our credit report at least once a year. Julie Miller contacted Equifax eight times between 2009 to 2011 to fix mistakes including her social security number and birthday on file. She didn’t make much progress.

The Federal Trade Commission found in a 2013 study that 21% of the 2,968 credit reports they investigated contained errors. The survey also found that 5% of the errors represented issues that lead consumers to be denied credit. Various other studies have also shown that 25-30% of credit reports have errors. Pretty high if you ask me.

The purpose of checking your credit score before applying for a mortgage or a loan isn’t only to assess the viability of getting such a loan and figuring out the expected interest rate. The main reason why I check my credit score once a year is because of identity theft and errors. If I’m not taking out credit, someone else better not be using credit in my name!

MY PAINFUL EXPERIENCE WITH CREDIT SCORES

My 2012 home mortgage refinance almost got derailed due to a $8 utility bill that was not paid by my tenants when they moved out in 2010. I had no idea that PG&E ended up filing a claim against the credit agencies, knocking down my TransUnion credit score by 100 points to 687 at the time.

Due to this report, my mortgage refinance process was delayed by another 10 days for a total refinance period of 100 days until I forced PG&E to write a “Clear Credit Letter” to my bank. Talk about stressful, since I wanted to lock down a $300/month savings before leaving my job. Always refinance before leaving or changing jobs please. No W2 income means you are dead to banks. Here are some mortgage refinance solutions if you have already left your job.

Ignorance is not bliss when it comes to knowing your credit score and making sure your credit report reflects your true financial picture. For two years I thought I had excellent credit in the 790+. It was like walking around with a tumor in my body thinking everything was fine and dandy until it isn’t.

CHECK YOUR CREDIT REPORT TODAY IF THE FOLLOWING APPLY

* You are looking to buy a home. If this is your first home, having a good credit score and clean report is more important than ever because banks don’t have a history of mortgage payments to judge you by during their decision making process. The housing market is back. The winning bidders are ones who pay cash or have a huge down payment because that provides comfort to the sellers that less things will go wrong. If you’re one of the typical buyers with a 20% downpayment and hit a roadblock in terms of getting financing for your dream home, you are probably going to get dropped like a hot potato by the seller.

* You want to refinance and plan to use your credit score as leverage to convince lenders to offer you the lowest rate. Lenders have used credit scores as excuses not to give you the best rate. This is your opportunity to turn things around in the negotiation process by not only knowing your score but leveraging your score for a better deal. The average credit score for a rejected refinance applicant is 729!

* You are looking to rent an apartment. As a landlord, the credit score and report is one of the most important criteria I use in choosing a tenant. If a serious prospective tenant doesn’t come prepared with documentation (ID, bank statement, credit report, references, letter of employment) then they will not be considered since everybody else does come prepared. All I want is for the tenant to be respectful and to pay the rent on time.

* If you have gone into foreclosure or bankruptcy. From 2008-2001 foreclosures and bankruptcies skyrocketed due to the economic meltdown. It takes three to seven years to potentially get back your pre-foreclosure, pre-bankruptcy credit score. You should probably track your credit score like a hawk during this time period because a four year spread is huge to wait until you can move on with your financial life again. Here’s how much a foreclosure will hurt your credit score.

* You are planning on leaving your job to become an entrepreneur or take a break. Most entrepreneurs fail, which is why banks don’t provide mortgages or refinancing to people without a history of stable W2 income. I went to inquire about another refinance six months after leaving my job and this bank would only let me refi if I deposited $1 million in liquid assets with them. Not going to happen. Although lending standards have loosened, they are still quite tight. Here’s an article I was interviewed in the LA Times about the difficulties of refinancing.

* You are applying for a new job. It is becoming more common now for employers to check your credit score before hiring. The logic is that if you aren’t good with your own money, there’s a chance you won’t be a responsible employee. We discuss about whether an employer has a right to check an employee’s credit score before hiring.

* If you’ve been late on a payment. There are generally 15-30 day grace periods by credit card companies and banks if you are late on a payment before they report you. You’ll usually be assessed a late fee charge. However, you never really know until you check for yourself. If you’ve had multiple late payments over the past 24 months, it’s a good idea to check. One late payment can kill your credit score.

* You want to help a loved one. Part of the reason why Julie Miller sued and the jury awarded her such a huge punitive damage sum is because she was trying to help her disabled brother, who couldn’t get credit either. It’s one thing to borrow money to help a brother buy a sports car. It’s another thing to not be able to get a line of credit for basic survival needs.

* If you’re getting into a serious relationship. There are dating sites nowadays that rate people based on their credit scores. You obviously want to know what yours is if you plan to be on these sites. For more serious relationships such as marriage, it’s important to start off with all the financial cards on the table. Income and liabilities are assumed by both parties. You can’t help your partner improve their credit score if you don’t know what it is.

CONCLUSION

It’s much better knowing the problems up front so you can take steps to fix your credit report rather than find out during the process of applying for credit or after the fact.

I check my credit score and credit report once a year because shady things happen all the time. I’ve been burned before and I don’t want to go through the stress again if I ever do apply for credit. You can check your TransUnion credit score for free at GoFreeCredit.com which I am an affiliate. If you don’t want the credit monitoring service that warns you about fraud, simply cancel before the trial period is up.

Readers, anybody ever have a mistake on their credit report? If so, what was it, what did you do to fix the situation, and how long did it take?

Free Credit Score Check

Photo: The Lion Monument, Lucerne, Switzerland, 2013.

Regards,

Sam

Sam started Financial Samurai in 2009 during the depths of the financial crisis as a way to make sense of chaos. After 13 years working on Wall Street, Sam decided to retire in 2012 to utilize everything he learned in business school to focus on online entrepreneurship.

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Comments

  1. Holly@ClubThrifty says

    I once had an error on my report right after I paid off my old car (probably about eight years ago). Anyway, I had to file an official complaint with all three reporting agencies. After a few months it was off of my report.

  2. John S @ Frugal Rules says

    Oh, I hate dealing with errors on my credit report. I am a Jr. and have had to deal with it numerous times because an account my Dad has will show up on a report. Thankfully they’ve always been removed, but it generally takes several months to do so.

  3. JT says

    I’ve yet to find an error on mine, for which I’m pretty happy. Luckily my name isn’t very common, and someone else who has it lives several thousand miles away, so odds are that I won’t have one.

    That won’d stop me from checking semi-regularly. A big error could easily set you back 50-75 points, which could easily add .25-.5% to a mortgage, not exactly an insignificant sum over 15-30 years. Not to mention, even if the data isn’t erroneous, it’s possible to get a bad mark taken off your report with a few letters, phone calls, and disputes.

  4. krantcents says

    Many years ago, a department store erroneously reported a $35 charge off against me. I was approved for a American Express card, but turned down for a line of credit with Wells Fargo. The worst part was it took 6 months to correct and they would not take responsibility for the error.

  5. Bob Richards says

    I had errors and had to sue American Express and Citicorp in small claims court. I won. I wrote an ebook about it for others who cannot get their credit reports fixed–about 8 million people.

  6. Shaun says

    Check out credit karma its an iphone app but also has a website. Its free and not spammy. If you don’t need numbers from all three agencies its pretty easy to check whats up all the time with it.

  7. No Waste says

    I’ve never had a mistake, but we did discover that there was a credit card shared between my wife (when she was an undergrad) and her mom still floating out there.

    No issues came of it, but it was the reminder that we needed that to get her name off the account because that credit line was impacting her score/report in terms of available credit and credit capacity.

  8. Tara @ Streetsaheadliving.com says

    It’s crazy to me that a company can take you to collections over $10! A similar thing happened to me with a subscription to a local paper. Little did I know that this local newspaper auto resubscribes even if there is no credit card on file. I cancelled it after receiving the first bill ($7) and thought I didn’t have to pay for it since I didn’t ask for it. But they sent it to collections because yes, I checked off that “I agree to terms and conditions” so technically I agreed to being resubscribed. I complained immediately to the paper and they removed the collection (and w/o my SSN at the time, it didn’t show on my credit report) and I paid the thing immediately. Glad to hear your problem eventually worked out.

    • Financial Samurai says

      Those sneaky bastards. I hate those “if you don’t respond we assume you agree” subscriptions. I think they finally passed a law against that which requires the subscriber to double confirm.

      Stressful.

  9. Jon @ MoneySmartGuides says

    I had an error one time on my credit report. They had the same apartment address listed as two different residences, one with the apt number the other without. Not sure if it would have mattered in the long run, but I had it fixed. The process was smooth for me, but I’ve heard others having horror stories.

  10. David M says

    My question is, where is the lion picture from? Is it Lucerne Switzerland? I was in Switzerland about 25 years ago and I think that is where I remember seeing that lion?

  11. Untemplater says

    I can’t imagine what that woman had to go through. I’ve had to make a few requests for corrections in the past and it only took about a week. I guess birthdays and SSNs are much harder to get fixed. I reviewed my credit report a few months ago.

  12. nbsdmp says

    The whole credit collections and credit score stuff is such a racket. It is crazy because the actual goal of people should be to have a credit score of zero because they don’t borrow money. In the past year I had a collection service come after me for some random mail order item that I had never heard of or received…I had fun with it though and it totally confused them. They explained how they were going to ruin my credit and I replied, I don’t have credit nor do I care because I don’t borrow money…ever. The concept was so foreign they could not grasp what I was saying & went right back to their cue cards of intimidation. Young people out there, be responsible & get out of debt so one day you won’t have to worry about what the hell your credit score is…you’ll become very wealthy along the way.

    • Financial Samurai says

      Unfortunately, it’s the best system we got. And for most of us starting out, we depend on credit to buy our first house, car, business loan, etc.

      Given all the tax deductions and the ability to get wealthy if a leveraged asset goes up, while getting bailed out by the government if things go wrong, I embrace debt. If you can live on $1 billion dollars in debt for 85 years and die.. who wins?

  13. nbsdmp says

    You are 100% right, you win…but you are definitely gambling. Leverage creates empires and is causes them to crumble. I’m with you on the guy starting out, if you’ve got nothing to lose, lever up baby! The problem becomes most people can’t stop and get used to using debt…I have example after example of this. For one I bought my home from a 65 year old couple that made $2M/year, but were levered to the hilt…had mortgage debts, business debt and my guess would be a $12M net worth. Along comes an event like 2008/2009, a blip on the map for people who live within their means, but for them, they lost their $3M home to me cause I had cash in hand to bail them out, they lost their business because it needed cash and was levered. Now at 68 they are starting over, live in a $150k condo, trying to rebuild the business, if he had no debt he would be making $2M+ again and living in their dream home still. No argument debt can help you become rich, my only take is once you can get out of debt do it and never look back. It makes you make old fashioned decisions like can I really afford what I’m buying…I wish our Government thought the same way instead of this constant expansion and spending $ we don’t have.

  14. Little House says

    We check our credit reports once a year to make sure everything is good to go. We’ve worked really hard cleaning up our credit over the past few years and don’t want anything to derail it. However, as easy as it is to get something “bad” reported on a credit report, it’s super difficult to get it removed. That’s got to change.

  15. Jay says

    I am applying for a home loan and a $80 utility bill I never got dropped my score by 100 points like Sam’s situation. I paid the bill as soon as I found out about a year ago but the score is still low.

    How any of you guys had luck removing a paid collection? I moved and went to the local office to ensure I owed nothing but I have no way of proving that. I want to remove it before my home loan in a few months.

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