The Consumer Financial Protection Bureau (CFPB) releases a yearly summary of complaints related to the financial service industry, which includes credit reporting agencies. Based on a tally of all complaints submitted to the CFPB website in 2016, the greatest portion were about credit reporting issues. By the numbers, that comes to more than 43,000, or about 23% of the total 186,000 complaints. While the CFPB doesn’t collect data about how many complaints about credit report accuracy were valid, there is other data that helps us understand the widespread nature of the problem.
In 2012, the Federal Trade Commission (FTC) found that one-fifth of consumers who discovered an error on their credit report were able to have it corrected after filing a dispute. When following up with the portion that still had errors on their report, 69% still felt that some of the disputed information was still not reporting correctly.
An accurate credit report is critical to a person’s financial future, and consumers need to be aware that the responsibility for reviewing their report lies with them. Even though consumers can obtain their credit report free of charge, the 2015 NFCC Financial Literacy Survey revealed that 34 percent of respondents had not ordered their report in the past 12 months.
It is important to understand what a credit report is and what it isn’t. At its core, the purpose of a credit report is to provide those with a valid need a track record of a person’s credit history. Having a way to evaluate the risk of extending new credit is just as important to the consumer as it is to the business.
Among other things, the report contains information such as where a person lives, how many lines of credit have been applied for or opened, and how he or she manages credit. Credit reporting bureaus are a repository of information that has been provided to them. They sell the information to lenders, insurers, employers, and other businesses that use it as a tool when evaluating a person’s application for credit, insurance or employment.
There is often misunderstanding regarding credit reports. Many erroneously think that the credit report includes a credit score, a person’s race, income or medical history. One of the most common misconceptions is that the credit bureaus are involved in the approval or denial of credit, which is not true.
The reasons for obtaining a credit report are many, but include confirming accuracy before applying for credit, checking for identity theft, or verifying that outdated information has rotated off. Perhaps the most important reason is that the all-important credit scores are based on the information contained in the credit report.
If, upon review, consumers question the accuracy of the information contained in the report, the Fair Credit Reporting Act provides them with the opportunity to dispute the entry. Consumers should dispute the information directly with the credit reporting bureau through which the report was obtained. The bureau must then investigate the concern and correct or delete inaccurate or unverifiable information, usually within 30 days.
Anxious to find a quick-fix for a blemished credit file, consumers often fall prey to unscrupulous businesses which charge high fees but offer no legitimate help beyond what consumers can do for themselves at little or no cost. Warning signs are if a company offers to create a new identity and credit file, or guarantees to remove late payments or other negative information from a report. The smart consumer will check with the Better Business Bureau before becoming involved with a credit repair firm.
Since the credit report is meant to be an accurate snapshot of a person’s credit history, consumers need to remember that if the report contains negative information that is true, it needs to remain a part of the report. Filing a frivolous dispute benefits no one.
The CFPB’s announcement serves as a reminder of the importance of credit reports, and hopefully will inspire consumers to take the first step by ordering their report, examining it for accuracy, and disputing any errors. Consumers can obtain their credit report free of charge once every 12 months from each of the three credit reporting bureaus by going to www.AnnualCreditReport.com.
For help understanding the contents of your credit report, reach out to an NFCC Member Agency. To locate the agency closest to you, dial (800) 388-2227, or go online to www.nfcc.org. For assistance in Spanish, call (800) 682-9832.
About the Author: Bruce McClary is Vice President of Communication with the NFCC.
Views expressed are the personal views of the author, and do not represent the views of the National Foundation for Credit Counseling, its employees, its members, or its clients.