5 Credit Reporting Mistakes That Can Hurt Your Score
By GoBankingRates staff
A quick Google search on "credit report errors" will net several reputable studies confirming that anywhere from 20 to 70 percent of all credit reports contain some sort of error. For those keeping count, that means up to hundreds of millions of Americans must contend with inaccurate information reported about them. These errors can have a major affect on one's personal finances.
When credit repair is your No. 1 priority, working within a faulty system can be frustrating and inefficient. Take a step in the right direction by meeting examples of unfair credit reporting head-on and keep an eye out for credit report errors. Here are five common ones you should be aware of:
1. Personal Information
Never has the correct spelling of your name been so important. As the foundation of your credit report, basic information includes your:
- Social Security number (SSN)
- Status as an "authorized user" on an account
2. Duplicate Reporting or Missing Accounts
Mistakes occur everywhere, especially when credit bureaus receive mistakes from credit companies. Unfortunately, such problems could stand between you and fair financing. Keep a watchful eye and be aware of clerical errors such as:
- Duplicate reporting. When a loan is listed twice, the effects on your credit report are daunting. Duplicate reporting can affect your credit utilization ratio (outstanding debt versus total amount of credit extended to you), causing a decrease in your credit score. Another damaging example: When one collection company "sells" an account to another, causing one derogatory account to appear as two or more. Make sure you're not seeing double when it comes to listed accounts -- mistakes like this will unjustifiably impact your financial reputation.
- Missing accounts. While duplicate reporting has its downsides, missing accounts can be just as damaging. Credit history and length are important parts of the scoring system. Let your past work for you by ensuring its presence on your credit report. Contact creditors and the credit bureaus if you notice that information is missing.
While your credit limit might seem like an arbitrary number, its affect on your credit score is anything but random. False information can also negatively affect your credit utilization ratio. Consider the following example:
Take a lesson from James's situation and check each revolving account listing for its accuracy. Why settle for less than the truth?
James has a credit card with a limit of $16,000. His total balance on the card is $4,000, resulting in an acceptable debt utilization ratio of 25 percent (4,000/16,000 = 0.25). Unfortunately for James, the credit card company mistakenly reported his limit as $10,000. He is faced with a reported utilization ratio of 40 percent, a lower credit score and fewer financing options.
4. Identity Theft
Many people don't realize that they're victims of identity theft until it's too late. As a byproduct of technology, it's now easier for potential thieves to get their hands on everything from your Social Security Number to the PIN number on your debit card.
Avoid credit report errors as a result of identity theft by reviewing your report for suspicious activity or strange charges. Report these instances to your creditor immediately and place a hold on any affected cards. Recovering from identity theft can be a long process, one made worse without diligence.
5. Settled Accounts
OK, so you had some financial trouble in the past. An account went into collections, you forgot to pay enough tax or perhaps you even filed for bankruptcy. Effective credit repair means knowing your rights even when you've made mistakes. By law, credit reports are required to list all accounts accurately, negative or otherwise.
Review the dark spots on your report and make sure they are not causing more damage than necessary. For example, if you settled an account, make sure it's been updated. The bottom line: Don't let past blunders hurt you more than they should. Work to ensure a better future, and don't hesitate to contact a professional if you need help correcting credit report errors.
This post was contributed by our Financial Literacy Movement partner Lexington Law. Lexington Law is the trusted leader in credit report repair and has been helping consumers take action on their credit reports since 1991. Lexington Law has served over 500,000 clients, and has led to the removal of millions of questionable items from client credit reports such as collections, late payments, bankruptcies and more.