When I was turned down for a routine personal loan, which I should have easily qualified for, I discovered by accident that I had a low credit score. To make a long story short and sweet, I discovered a serious error in my credit report that had caused a huge reduction in my credit score.
What follows are the steps that I took to correct the problem and some other general guidelines for monitoring and spotting any potential credit zapping mistakes or errors in your credit report.
In order to have a great credit score the first thing you need to do is to understand your credit report. Your credit score is a value that is used to determine your worthiness to receive a loan from a financial institution and if you are worthy then the credit score (or FICO score) is used to determine the rate you will pay for the loan. Credit scores are calculated primarily from the repayment patterns and other information contained in your credit report.
A credit report includes information on where you live, how you pay your bills, and whether youâ€™ve been sued or arrested, or have filed for bankruptcy. Nationwide consumer reporting companies sell the information in your report to creditors, insurers, employers, and other businesses that use it to evaluate your applications for credit, insurance, employment, or renting a home.
Step 1: Obtain Copies of Your Consumer Credit Reports
By law in the US and Canada consumers are entitled to one free copy of their credit reports each year. In the United States you can get these reports from Credit Report Request Service. This website is run by the three major credit reporting agencies: Trans Union, Equifax and Experian.
The reports can vary slightly in format, but basically they are all similar. I recommend that you print out the report or save it to your computer for future reference. I printed mine to be able to make notes of corrections.
If you have already requested your free report for the year, you can order an additional copy from MyFico.com.
Step 2: Check Your Personal Information for Accuracy
The first section of your credit report usually contains all of your personal information. Even in this section mistakes are not uncommon. Make sure you check for:
- Misspellings of your name and even names that are completely not related to your name
- Errors in your Social Security Number or even full numbers that are not yours
- Errors in your addresses: be especially vigilant for address where you have never lived
- Mistakes in your birth date
Any of these errors could be simple mistakes or, like many credit report errors, can indicate that you have been the victim of fraud or identity theft.
Step 3: Review the Credit Account Information in Your Credit Reports
This section contains the information about all the credit accounts (credit cards, lines of credit, home equity loans, etc) you have opened. Typical data includes the date opened, date closed, credit limit, account number, payment history, and the account balances.
Here’s what to watch for in this section of the credit report:
- Errors in late or missing payments that aren’t correct (on my report I had a “no payment” on a debt of $907 dollars, even though the monthly payment for that loan was $85 and I had never missed a payment)
- Any errors that are more than 7 years old other than a bankruptcy
- Entire accounts that are not yours or you didn’t open
- Accounts that you closed which are still flagged as open
Other than simple clerical or reporting errors and identity theft the most common cause of problems is when two family members have similar or even the same name. Watch out for bizarre mistakes like having tainted accounts listed that you have no knowledge of or patterns of mistakes which may indicate an accidental merging of your credit report with that of another individual.
For a continuation of my in depth reports on credit report information see 3 in 1 Credit Report, Online Credit Reports, Equifax Credit Report, Credit Score Monitoring, Credit Bureau Report, Free Credit Reports which outline credit reporting bureaus policies and how to obtain and understand your credit report information.
Step 4: Review the Inquires Made on Your Credit Report
There are two types of inquires which can be made against your credit report. They are known as soft & hard. In brief soft credit report inquiries are made by third parties and hard credit report inquiries are made by you when applying for credit (or by the financial institution where you are applying).
Have you ever received a (one a week is more like it if you have good credit) credit card applications announcing that you are pre-approved for a specific credit limit? These are the result of credit card companies running a soft credit report request and then deciding that you would make a good client based on the information in your report. They are annoying, but in a way these unsolicited offers are a good sign: they likely indicate a reasonably healthy credit report.
Hard inquiries are the ones we want to monitor carefully. Watch out for:
- Hard inquiries that you didn’t authorize
- Inquiries listed that are more than two years old
Either of these needs to be disputed and corrected to fix your credit report and raise your credit score.
Step 5: Review the Collections & Public Records Section of the Report
This section of your credit report deals with all the major strikes against your report including: garnisheed wages, personal bankruptcies, home foreclosure, tax liens for unpaid property taxes, or unpaid lawsuit judgments.
Again, like in the other sections, you want to carefully scan for errors.
- Any of the items that are still showing as unpaid which you have in fact paid off
- Bankruptcies that are more than seven years old which should have been removed from your record
- Items that you don’t recognize
- Duplicate items, which are most often caused when two collection agencies are hired to try and recover the same funds and both file a negative against your credit report
In the step 6, I’ll outline how to deal with any errors in this section of your credit report.
Step 6: Dispute Any Errors in Your Credit Report
When you receive your credit report it should come with a form or instructions for disputing any errors your may find.
When you submit the form to the credit reporting agency, they must investigate and respond in 30 days. Usually they will simply ask the creditor company that filed the information to look at their records and verify that they are accurate. If the creditor cannot verify or does not respond, the credit bureau will remove the disputed line from your credit report.
In my case, the bank that had filed the incorrect information, insisted it was correct. Unfortunately this type of thing is all too common. Another one to watch out for is when the company acknowledges the error, so it gets removed from your credit report, but then re-submits the same incorrect information a couple months later. It’s a good idea to have your credit report pulled again a couple months after having disputed entries removed, just to make sure they do in fact stay off of your report.
If the credit won’t play fair, then you don’t have many other options but to get involved in pressing the matter legally ( I highly recommend How To Repair Bad Credit written by a retired attorney. In my case, I was lucky that the bank had a very reasonable ombudsmen program. The ombudsman, a woman , took about 2 hours to realize that there was no way that I could have an unpaid debt of $907 from a loan that I was paying at $85 a month and I had never missed a payment (duh!). It turned out that there had been a glitch when the bank transferred the account which the loan was being withdrawn from.
In the end, I had my credit report cleaned up, my credit score improved and I was able to qualify for the loan that I was applying for.
Once you have cleaned up your credit report, the next step for boosting your credit score is to deal with your debts. A debt management plan based on a budget review is usually the best place to start.
A Final Note about Credit Report Reviews
Personally I believe in absolute honesty is the best policy, but some credit counselors will advise their clients to only correct negative items in their credit reports. For example, you find a loan in your credit report that you know isn’t yours. It is fully paid without any late or missing payments, so it is probably boosting your credit score. Some will advise you to ignore these types of errors.
It’s my feeling that in the long term this could come back to create more problems, so proceed with caution when trying to get an advantage by allowing incorrect information to remain on your credit reports.