As you gain a clearer picture of how errors work, you should take a close look at the credit-reporting companies. What are their motivations? Who do they work for?

The Customer Is Always Right

Credit-reporting companies work for their customers. Their customers include anybody who buys credit reports and credit scores from them. For the most part, their customers are lenders. Lenders pull your credit anytime they need to evaluate your creditworthiness, like when you apply for loans. In addition, lenders check your credit periodically. They check to see if you're falling behind on other accounts or racking up too much debt, among other things. Credit-reporting companies make a lot of money from their lending customers.

In addition to paying the credit-reporting companies, lenders provide information. They report on their customers regularly. Since credit-reporting companies sell information, they love the organizations that give it to them. Of course, lenders report to the credit-reporting companies to discourage borrowers from defaulting. Some lenders do not report anything unless you fall behind, but the reputable ones report both good and bad information.

Credit-reporting companies do not want to do a bad job for their customers. What's the worst thing that could happen to a lender? A borrower could default — declaring bankruptcy and getting a liquidation of his debts. If this happens, the lender is unable to collect any money. Therefore, creditreporting companies want to make sure that they expose any potential risks. They would rather portray a consumer as more risky than less risky.

Pesky Consumers

Consumers, on the other hand, are more of a nuisance. If they ever call at all, it's with a complaint. They seem to think that there is an error somewhere that needs to be fixed. However, credit-reporting companies only report information that is provided to them. They don't make the stuff up, right? Yes and no.

The credit-reporting companies use some artistic license when they figure out how to group account records together. Most of the time, it works beautifully. Just imagine how difficult it must be to provide a record on an individual. People get married and change their names. They use different versions of their name on different account applications, and they move across the country. To add to the confusion, the creditors may provide them with incomplete or incorrect information. The credit-reporting companies have to contend with all of these challenges.

The Floodgates

When things go wrong, people tend to complain, and the credit-reporting companies are inundated with disputes. Consumers claim that a delinquent account is not theirs, or is not delinquent. They claim to be alive when their credit report clearly says that they are deceased. They claim all sorts of things. All of these claims must be investigated, and that takes resources. Since these consumers are not paying customers, you can imagine how eager the company is to satisfy their needs.

In his book Credit Scores and Credit Reports, Evan Hendricks explains in wonderful detail how credit-reporting companies “investigate” disputes. Read this book if you would like to understand the nuts and bolts of your credit reports (you'll also be saddened and angered by some of the accounts in the book, which should motivate you to manage your credit). After boiling down the numbers, it turns out that an employee has about 1.66 minutes to handle a dispute. In order to manage this volume, credit-reporting companies use an automated system to verify accounts with the reporting creditor. As Mr. Hendricks noted, a better word to describe the process might be compare. If the record at the creditor is similar enough to the record at the credit-reporting company, no correction is made.