Everybody Makes Mistakes
Errors can come from a variety of sources. When you have errors on your credit report, it can be extremely frustrating. To help you through the process, it is important to take a big-picture view of the situation. This will help you see where errors may be coming from, and it will help you focus your attention so that you can get results.
On the Bright Side
If it makes you feel any better, consider how the system works as a whole. Credit reporting and credit scoring probably helped you get credit quite easily. Were it not for the credit-reporting process, getting loans would take a lot longer. In addition, lending decisions might be biased, allowing for discrimination or poor judgment on the part of lenders. Finally, with the advent of scoring and risk-based lending, loans are available to a wider population.
To say that fixing errors in your credit report can be frustrating is a major understatement. The process can be absolutely mind-boggling if it does not go smoothly. It can take months, years, or even a lifetime. You might feel like you're beating your head against a wall, and you might even lose your faith in humanity. There are a lot of really disturbing stories out there, so just be aware that others have been down this path before you, and most of them eventually found success.
Errors on your credit report represent a glitch in the system. Periodically, things go wrong. Credit reporting happens on a huge scale. The seemingly small percentage of errors can result in major headaches for millions of consumers. If you find yourself a part of this group, remember to keep the big picture in mind.
The Lender's Perspective
When trying to solve a problem, it is best to understand the perspective of all parties involved. You have a goal, and you may be in the right, but other interested parties have their own motivations. Consider the lender's perspective when it comes to credit-reporting errors. Like most businesses, lenders want to operate as efficiently as possible. In other words, they're trying to save money. As a result, they may not devote extensive resources toward ensuring that your credit reports are accurate.
Leaving Money on the Table
Credit-report accuracy happens to be in the lender's best interests. Consider the outcomes of inaccurate credit reports. If a responsible borrower has errors in her credit report, she will look less attractive as a customer. While she may have never made a late payment, her credit report may indicate otherwise. Perhaps it shows several accounts past due, and a recent bankruptcy.
If these errors were not a part of her credit report, lenders would love to have this person as a customer. She pays her bills on time, as agreed. Therefore, she would be a profitable customer. Unfortunately, the creditors do not know this because of her marred credit report. They deny her applications for credit, or offer her rates that are simply not acceptable. As a result, they lose a customer, or at least they fail to gain a profitable customer. The lenders leave money on the table when this happens.
Risk to Principal
Now, consider an opposite example. Imagine a borrower who has had a hard time meeting his debt obligations. He has paid his bills late in the past, but only on one of his accounts, and it has been several years. The other six accounts on his credit report are sparkling and immaculate. Like the borrower above, his credit reports are inaccurate. However, instead of showing somebody else's derogatory information, the errors on his report make him look more attractive as a borrower.
As you navigate through your credit and fix errors, consider the objectives of all the parties involved. By knowing what they want and how they operate, you will have knowledge to help yourself solve problems. Ultimately, credit-report accuracy benefits everybody.
Because of the appearance of a strong credit history, credit-scoring models grant this borrower a fairly high score. Lenders decide to offer him credit, and they offer a fairly generous credit line. Unfortunately, they're taking a risk that they don't even realize. There is a decent chance that this borrower will not pay his debts as agreed. As a result, the lender will have to spend time and money trying to collect on the debt. In a worst case scenario, the borrower will default altogether and the lender will have to take a loss.
In the Real World
You just looked at two examples of how erroneous credit reports can hurt lenders. It may seem that either example is equally probable. In the real world, things don't work out that way. First, lenders are more scared of losing principal (the second example) than they are of missing out on a good customer (the first example). How might this influence their decisionmaking process?
Accurate credit reports would benefit everybody. Consumers would be judged on a fair basis, and lenders would have an accurate picture of who they are dealing with. It is amazing that lenders cannot devote more resources toward ensuring credit-report accuracy. Regulators, lawsuits, and consumer advocates do most of the heavy lifting.
Errors in your credit can come from several sources. A creditor or information provider could report inaccurate information about you. You should try to fix that with the creditor. Credit-reporting companies are also guilty: they sometimes mix and match data incorrectly and cause errors to appear on your reports.
What about the Agencies?
Lenders are responsible for the information that ends up on a credit report. However, they are not responsible for all of the errors out there. The credit-reporting companies play an important role in creating and correcting any errors. Sometimes these companies are referred to as credit bureaus or credit-reporting agencies. The three largest ones in the United States are TransUnion, Equifax, and Experian.
The credit-reporting companies store information that is sent to them by your creditors. Your creditors might send monthly updates on each of your accounts. This information is stored in massive computer systems. While you might imagine that the credit-reporting companies keep your credit report, that is not exactly accurate. They keep records of the account updates sent by creditors. Whenever somebody asks for your credit report, the credit-reporting company creates one by joining all of the records that seem to be yours.
