Credit reports contain information about us that essentially will determine how much we pay for insurance, auto loans and other forms of credit. That's because information in credit reports is used to generate credit scores, which lenders and others use to decide on what interest rate and other credit terms to offer us.
That's why a congressionally mandated report released today by the Federal Trade Commission is troublesome.
The FTC found that one of four consumers has at least one error on one of the three major credit reports. And 5 percent of consumers had errors serious enough that they could be charged more for financial products as a result.
Other FTC findings:
-- One in five consumers had an error corrected after disputing the information.
-- Among those filing a dispute, 80 percent saw some modification to their credit report, and a little over 10 percent saw a change in their credit score after the modification.
-- About one in 20 consumers saw their score change by more than 25 points.
"These are eye-opening numbers for American consumers," Howard Shelanski, Director of the FTC's Bureau of Economics, said in a statement. "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."
Consumer advocates have long criticized credit reporting agencies, particularly about how difficult it is to get errors corrected:
Evan Hendricks, author of Credit Scores and Credit Reports, said in a statement: "With FTC's confirmation that credit report errors are all too common and harmful to consumers, it's high time that credit reporting agencies overhaul their operations so they actually comply with the law and investigate consumers' disputes, with actual human beings as investigators.
Ed Mierzwinski, U.S. PIRG Consumer Program Director, said he's not surprised by the FTC's findings.
"We've criticized the credit reporting industry for decades over unacceptable levels of seriously damaging mistakes, many of which are entirely preventable."
He added that the FTC found that the percentage of serious errors was about 10 times higher than an industry-sponsored study found.
Chi Chi Wu, staff attorney at the National Consumer Law Center, said there needs to be major reform of the credit reporting industry. "It's unconscionable that 40 million American have errors in their credit reports, and that 10 million have errors grave enough to cause them to be denied or charged more for credit or insurance or even be denied a job," she said in a statement.
"Our goal is perfection. For that to happen, all parties – data furnishers, consumers, government agencies and the CRA's – have a responsibility and need to work together."
Equifax noted that 95 percent of consumers disputing information are satisfied with the outcome, and the reporting agency said it resolves 75 percent of disputes within two weeks, less than half the time that's required by law. And, the reporting agency said it is streamlinng the process to further reduce the time it takes to address disputes.
And, Equifax noted, that not all errors harm consumers
" Even the results of the FTC study… whose research was impacted by the use of "coaches" to help consumers find errors in their report and a payment of a fee to the participants, said that 2.2 percent of reports had an error which had an impact on the consumer's score and move them to a higher risk level."
According to TransUnion:
"The FTC study concluded that only 2.2% of credit reports reviewed in their study experienced a credit score increase that would affect a consumer's ability to obtain credit. This is consistent with the peer-reviewed study conducted by the Policy and Economic Research Council, published in May 2011. Nothing is more important to TransUnion than the security and accuracy of consumers' information, and while the material error rate is low, we continually strive to reduce it. Like the FTC, we encourage consumers to review their credit reports regularly. When consumers see something that doesn't look right, they can dispute it directly with their creditor, or with the credit reporting company, online, by phone or by mail."
I'll post Experian's comment when it comes in.
Update: It's in. This statement from Experian, which says most people are confident that the reporting agency has an effective dispute resolution.
"After thoroughly reviewing the FTC report issued today, we believe it confirms that consumer credit reports are predominately accurate and serving lenders and consumers well. The report shows that the vast majority of errors on credit reports have no bearing on credit scores, for example outdated information on a consumer's phone number or address. About 2.2 % of reports contained an identified error that shifted consumers to a more favorable lending tier when the data furnisher corrected the inaccuracy.