The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.
A credit report is a file on a consumer aged 18 or older that summarizes the individual’s behavior with credit. Credit reports are created by independent credit bureaus that source their financial information from financial institutions, creditors, government agencies and other places. Based on the data collected, each consumer is given a credit score that tells lenders how reliable a person might be with credit.
For example, someone who has a history of missing payments, paying bills late, accumulating debt and showing other irresponsible financial behaviors will likely be given a low credit score. When a person with a low credit score goes to apply for new loans or credit, they’re more likely to be denied or only approved with poor loan terms.
As credit bureaus only collect—and don’t audit—their information from third-party sources, it makes sense that mistakes can occur. For example, two people with the same names can have their information swapped on their credit reports. Credit report errors are common; a survey from the Federal Trade Commission found that over 20 percent of people have a mistake on at least one credit report. If left unaddressed, these errors can significantly impact a person’s credit score and financial well-being.
A survey conducted by Lexington Law shows that people might have a variety of responses to learning that they have an error on their credit report.
The survey conducted by Lexington Law found that:
Unfortunately for those who said they would ignore an error on their credit reports (almost one in five), this path won’t lead to any positive outcomes. Credit bureaus don’t audit their information, so mistakes will remain on credit reports and continue to drag down consumers’ scores until they’re dealt with or until they drop off naturally after a number of years—typically seven to 10.
The problem seems to stem from people’s confusion with credit reports and credit scores in general. Many people don’t know how credit scores are calculated, and according to an earlier survey Lexington Law conducted, half of the respondents stated that they had never checked their credit report.
Additionally, some consumers seem to be unaware of the impact a credit score can have on their purchases. For example, a CFA and VantageScore Solutions survey found that only 22 percent of consumers understood that a low credit score borrower would pay thousands more in interest on an auto loan than a high credit score borrower.
For those who are checking their credit reports, mistakes seem to be on the rise. The CFPB reported that complaint volumes increased by 54 percent in 2020 compared to the prior year. Consumers need to know, though, that while filing a complaint is important, it won’t remove an error from your report. Consumers need to dispute errors on their reports, either independently or with the help of a credit repair agency.
Fixing credit report errors isn’t an easy or quick process, but it’s worth the effort. A Congressional Research Service Report in 2020 highlighted that out of participants who found an error on their report and fixed it, 13 percent saw one or more of their scores increase. And, out of those people who saw an increase, over 40 percent of them saw a credit score jump of more than 20 points.
In general, older generations have higher credit scores than younger generations. This could be because members of the older generation have the opportunity to educate themselves financially or the means to address issues with their finances when they arise. Older people also have longer credit histories, which is one of the factors that contribute to your credit score.
Lexington Law’s survey found millennials were less likely to address problems on their credit reports than baby boomers. This, in conjunction with millennials having lower credit scores on average, is causing significant issues for this generation’s financial prospects.
In 2019, Bankrate released a survey that found millennials were experiencing higher rates of denial for financial products. Almost six out of 10 millennials reported being rejected for mortgages, credit cards, car loans and other types of credit or loans.
According to the Federal Trade Commission, some of the most common errors people find on their credit reports are:
When an error is found on their credit report, consumers can dispute the error. Disputes are done directly with the credit bureau by mail, by phone or online. Consumers will need to provide proof of why they think there’s an error in their report.
When consumers file a dispute with a credit bureau, the bureau usually has 30 days to launch an investigation and respond to the dispute. In reality, these disputes can often take much longer as the bureau goes back and forth with the lenders about inaccurate information. With the rise of data breaches, identity theft cases and consumer disputes, credit bureaus are simply finding it challenging to keep up.
Finally, motivation is lacking for the credit bureaus to check if the data is accurate. Financial institutions pay the credit bureaus for consumer reports. These bureaus have an incentive to process millions of records as quickly as possible. They leave it in each consumer’s hands to review credit reports and file disputes if anything is incorrect.
There are essentially two options for filing a dispute: doing it independently or hiring a credit repair agency. Half of the respondents in the Lexington Law survey said they would attempt to file a dispute themselves. The benefit of doing this is that it’s free.
However, this approach can also lead to disputes having less chance of being successful, because the average consumer doesn’t know a lot about the dispute process or credit industry—plus, the process can be time-consuming and frustrating. For these reasons, many people seek out credit repair services to work with.
According to the survey, more women than men would be willing to hire a credit repair company. Interestingly enough, this is in line with typical male and female behavior patterns in personal finance. A recent study from the Spectrem Group found that 61 percent of women use a financial advisor, while men lag at 56 percent. These gender differences could be due to a few factors:
A credit repair company will review your credit report for you, find any errors that are worth disputing and dispute them on your behalf. The company will handle the work and communicate with the bureaus. But note that a good credit repair organization will never make promises or guarantees, as that would violate the regulations of the Credit Repair Organizations Act (CROA).
Hiring a credit repair company has some clear advantages. First, as we’ve mentioned, credit repair organizations file hundreds of disputes a day and know what to include to increase the chances of your dispute being considered. Second, reviewing your reports and filing a dispute requires hours and hours of work. Most people simply don’t have the time or experience to do this work and are better off outsourcing the task.
Monitoring your credit report is an integral part of maintaining an accurate credit score and protecting your financial future. Even addressing “small” errors, such as an incorrect address on file, is essential.
For example, Consumer Reports tells the story of a San Diego attorney who saw his credit score drop almost 80 points while applying for a mortgage. An incorrect address on file meant parking tickets weren’t reaching the attorney and had been left unpaid for two years, impacting his credit score. Clearly, it’s essential consumers review their credit reports and keep them accurate.
If you’ve found an error on one of your credit reports and you have any questions about the dispute process, please reach out to our team.
This study was conducted using Google Surveys. The sample consists of no less than 1,500 completed answers. Post-stratification weighting has been applied to ensure accurate and reliable representation of the total U.S. population ages 18 and older. The survey ran online in April 2021.
Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.
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