YOUR MORTGAGE : Agencies Slow to Clear Errors

If you’re a home mortgage borrower whose application was denied--or rate quote increased--because of erroneous information in your credit report, a new study suggests you could have trouble getting the mistakes corrected.

In the first comprehensive investigation of its type, the state of Maryland’s consumer credit commission found that despite claims to the contrary, the nation’s biggest credit reporting agencies are often unresponsive to consumers’ requests for corrections of bad data.

The Maryland study is significant because of the size of the sample of complaints and the length of time covered. It encompassed all 1,018 written complaints about credit bureau data irregularities received by the commission during 1993. Each complaint alleged that one or more of the three largest credit file repositories--Equifax, TRW and TransUnion--had either failed to respond to the consumer’s requests for correction of errors, or had declined to change the file.

Staff members of the commission re-contacted the credit bureaus involved to determine whether in fact the consumer’s file contained erroneous information. Commission director Alan T. Fell said he was “absolutely stunned” by the results of the project. In 56% of the cases, the credit agency acknowledged and corrected errors in the consumer’s file--despite having failed or refused to do so earlier when asked by the consumer. In another 13% of the complaints, the files “may have included the errors the consumer claimed,” according to Fell, but investigators determined that the consumer had not previously contacted the credit agency.

Only in 10% of the cases did the credit repositories refuse to change the consumer’s file after being contacted by the commission. Another 21% of the complaints were culled from the study, either because the consumer lived outside the state--beyond the commission’s statutory jurisdiction--or the issue didn’t really involve any of the three credit reporting agencies.

“What’s so disturbing,” Fell said, “is that we documented beyond any doubt that (the credit bureaus) aren’t doing what they say--they’re not cleaning up erroneous files when they’re asked to by the consumers directly affected by the errors.”

The results of such “foot-dragging and run-arounds” can be disastrous for borrowers, said Fell in an interview. “Your mortgage application gets turned down, or you’re told you’re a high-risk borrower, or you don’t get the job because of negative material in your file.

“This is serious. We’re talking about people’s lives here, not abstractions.”

Requests to TRW, Equifax and TransUnion for comments were responded to by the agencies’ joint national spokesman, Norman Magnuson of the Washington, D.C.-based trade group, Associated Credit Bureaus Inc. Magnuson said that while the overall error rate in credit files “is extremely small,” the industry will need to study the Maryland data and methodology regarding responsiveness to complaints.

“Any time we’re not serving our customers,” he said, “we should be concerned.”

Magnuson also pointed out that the largest credit agencies and lenders have been converting this year to “automated consumer dispute verification” (ACDV), an electronic system designed to resolve or respond to disputes or requests for corrections within 30 days--and often far quicker.

The Maryland study has special significance for the home mortgage field because large national lenders increasingly are relying on “merged infile” credit checks to make fast, low-cost underwriting decisions on applicants. This technique allows a loan officer to call up two or three of the repositories’ credit files on a particular applicant within three to five minutes at a cost of $11 to $13. The raw data is merged by a computer program to eliminate duplications. The underwriter can then give a thumbs-up or thumbs-down on the spot.

Rather than use the traditional approach of conducting a full-scale residential mortgage credit report--a costlier ($50-$60) alternative involving credit investigators who seek to eliminate errors in the files--the new approach minimizes human involvement. There is often little or no effort to detect errors.

But how accurate is the raw data inside credit files? Though the industry insists it is highly accurate given the billions of bits of credit data transferred annually, at least one group inside the credit field disagrees.

Members of the National Assn. of Independent Credit Reporting Agencies (NAICRA) examined a random sample of 1,700 merged infile credit reports on mortgage applicants earlier this year and found that 16% of them contained erroneous, derogatory information about the applicant’s credit history. Another 3% contained charge accounts and other debts that didn’t even belong to the applicant, and 2% contained erroneous “public filings” like tax liens and court judgments against the borrower.

How to avoid being bedeviled as a mortgage applicant by bad data in your credit file? First, request a copy of your credit reports periodically.

Second, challenge anything you see wrong in the file. If your requests for corrections are ignored or rejected unfairly, take your case to a state regulatory agency. As consumers in Maryland discovered, credit bureaus can indeed get your records straightened out promptly--especially if the phone call comes from a regulator.

Distributed by the Washington Post Writers Group.