Despite the recommendation to check your credit report on a regular basis, unless there is suddenly a problem, such as being denied a loan, what your credit report looks like may be an afterthought. Credit reports are used for many different things including loan approvals, car insurance rates, home insurance rates, apartment rentals, and employment opportunities. It is important to be proactive and monitor your report for accuracy. The effect of errors on credit reports can be dramatic.
Types of Credit Report Errors
There are several different types of errors that can be found on credit reports. Here are a few examples:
- Accounts that should be closed but were mistakenly not marked as paid.
- Cases of mistaken identity (from someone else having the same name or your identity being stolen).
- Wrongly marked late payments.
- Incorrect reporting of balances or credit limits.
- Inaccurate reporting of discharged accounts.
Effect of Errors on Credit Reports
Credit scores are compiled using a variety of information including payment history, balance owed, credit history, types of credit, and number of inquiries. Some errors have a greater impact than others. For example, being late 30 days on a payment may cause a smaller reduction than being late 60 days. Having your credit pulled once in the last 2 years may not impact your score at all, but having your score pulled twice may lower your score quite a bit. Each of the 3 credit bureaus use different algorithms to determine your score, so the impact is not necessarily the same across your three credit reports. Errors can often lead to dramatic reductions in your score. This ultimately results in you paying higher rates for loans and insurance coverage or being denied for credit, apartment rentals, or employment.
Protect Yourself from Errors in Credit Reports
It is important to review your credit report at least once a year. If you notice any errors, start the process of getting them corrected right away. Do not wait until you need to use your credit for something as it may take several months, or even longer, for corrections. By that time, it may be too late to help you with whatever you were attempting to use your credit for.
There are free services available, such as creditkarma.com that will not only provide you with reports but also monitor activity on your credit profile. The sooner that you detect a problem, the easier it will be to resolve. Don’t let the effect of errors on credit reports impact important events in your life.