Mortgage Planning: Fixing Credit Report Errors 101
Through this service, Allison discovered an erroneous tax lien on his credit reports. The District of Columbia tax office reported unpaid property taxes. It took nearly one year to resolve the dispute and remove the lien
Blake Allison prides himself on having excellent credit, so in an effort to preserve his 800+ score, he enrolled in a credit monitoring service. For a monthly fee, he is alerted to changes in his credit report.
Through this service, Allison discovered an erroneous tax lien on his credit reports. The District of Columbia tax office reported unpaid property taxes. It took nearly one year to resolve the dispute and remove the lien from Allison's records.
"Most credit reports contain errors," says Scott Stevenson, founder of Eliminate ID Theft, an identity theft protection and credit-monitoring agency. Some errors, such as misspelled names, have little impact on your credit worthiness, but Stevenson estimates that more than 25 percent of credit report errors are significant enough to negatively affect one's credit score -- bad news if you're in the market for a mortgage.
"Inaccurate credit reports can easily cost you thousands in higher rates," says real estate expert and mortgage broker Todd Huettner of Huettner Capital. "Recent real estate mortgage loan guidelines make errors even more costly when buying or refinancing a home." Before you apply for that mortgage, you'll need to review your credit reports and fix the errors ASAP. Here's how:
Be On the LookoutEthan Ewing, president of Bills.com, advises clients to go through their reports diligently from the most basic information to the finer details:
Name: Check spelling and accuracy of aliases, suffixes (Jr./Sr.), middle and maiden names.
Date of birth and Social Security number: These areas are especially important if you have a relative with the same name.
Address: Review current/former addresses. Errors such as Maple Street versus Maple Avenue may be a simple creditor mistake, but an unrecognized address could indicate identity theft.
Employer: Verify current/previous employers.
Credit inquiries"Understand the differences between types of inquiries on your credit report," advises Ewing. A hard inquiry appears when a lender checks your report because you requested credit. A few hard inquiries are fine, but too many can make you look desperate for credit and lower your overall credit score. Potential lenders may deny credit to borrowers with excessive inquiries because they don't know whether or not the inquiries have resulted in a recent loan. Fortunately, new credit scoring models now count multiple inquiries within a 14-day period as a single request, so hard inquiries should have less impact on overall credit score.
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Other inquiries, such as those marked "PRM," appear when companies intend to make promotional offers to you. Since such inquiries are not necessarily initiated by you, they do not negatively affect your credit score.
Also review when the account/loan was opened and your outstanding balance, credit limit, and payment history. "Some 'mistakes' are simply the creditor being slow to update an account," says mortgage consultant Jeff Tufford. Keep your own up-to-date records -- statements, online transactions, canceled checks -- so you can provide your lender with evidence of your current credit standing.
Identify missing credit limitsCredit scoring may use your current or high balance as the credit limit, making it look like you've maxed out your available credit, which in turn can lower your credit score.
"Credit card companies are lowering limits and the most damaging inaccuracies are over-limits," says Matt Sheldon, a consumer advocate attorney. If your credit card has a $10,000 limit, a high balance of $8,500 and a current balance of $3,000, your debt-to-credit ratio is an ideal 30 percent. If limit is lowered to $3,000, your report now shows a maxed-out card with no available credit and a high balance well over $3,000. "The bureaus have not yet repaired this major flaw," says Sheldon.
Negative informationInvestigate charge-offs -- debts that creditors write off because they were never paid. If the accounts were paid in full, be prepared to show proof.
Review collection accounts. "Collections are reported by the collection agency," says Tufford. "It's up to you to identify the creditor, and whether or not the account was paid."
"Look for cases of more than one collection account for the same debt," advises Ewing. There should be only one collection account for one debt; delinquency affects your score each time they are listed.
Like Allison, review public information such as judgments, tax liens, and child support disputes. If a legal issue was cleared, the negative item should be removed from your reports, but it could take months.
Error Resolution"If an error is spotted, the first thing you should do is contact in writing both the creditor and the credit reporting agency involved," advises Doron Jampolsky of The Credit Clinic, a consumer credit repair firm based in Tempe, AZ. Work only with the credit bureau(s) reporting the misinformation, not those reporting the information accurately.
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"Credit bureaus report what creditors report to them," says Sandy Shore of Novadebt Credit Counseling Agency, so you should also contact the credit company that reported the incorrect information. "You have the right to do so under the Fair Credit Reporting Act," advises credit expert Lathea Morris, credit expert and personal finance author.
Send written documentation via certified mail to the appropriate credit bureau(s). Include your name, date of birth, social security number, and address along with a statement that reads, "I have recently been denied credit due to misinformation on my credit report. [Insert credit bureau name] should make the following corrections to my report. "List the items to be updated, changed or deleted. Include copies of your driver's license, social security card, and recent utility bills, paystubs and bank statements. If you are in the process of a loan application, your loan officer can assist you with this process. The credit bureau has 30 days to respond.
"Credit bureaus must investigate disputed items and remove them if they cannot be verified," says Ewing. If the investigation indicates that their original information is correct, the item remains on the credit report. "If you disagree with the investigation," continues Ewing, "ask the bureau to include a statement of dispute on future reports."
Allison contacted the credit bureaus about the erroneous tax lien on his reports. The agencies' investigations indicated that the liens were accurate, so the information was not immediately removed from his reports. For months, Allison went back and forth with the tax office -- speaking with more than a dozen representatives, managers, and supervisors -- while accruing interest and penalties on the erroneous lien. His persistence finally paid off -- in September 2009, Trans Union informed Allison that the tax lien was removed from his credit report. The process took exactly one year and 11 months.
If the reporting agency refuses to remove an error for which you have substantiating evidence, you can file suit against the agency, file a complaint with the Federal Trade Commission, and contact your state Attorney General's office. The FTC offers a free guide to disputing credit report errors.
"We have to take responsibility for our own finances," says Allison. "Monitor your credit regularly or use a credit monitoring service. If there's an issue with your credit, be diligent about getting it resolved. It won't work itself out, and the longer you wait, the more the problem will weigh on your score."