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Don't let credit report errors ruin your life

by Peter Andrew

Last year, we told the story (in Credit where credit's due -- but only if you're lucky) of John G. Watts of Birmingham, Ala. The first time Mr. Watts knew he had an outstanding medical bill was when he was contacted by debt collectors. He immediately called the hospital, confirmed that the claimed $200 was -- in spite of his not having received an invoice -- legitimately owed, and the next day paid the collection agency in full.

Credit report errors are serious

Clearly someone had made a mistake, but, in spite of that, the collection company added a "paid collection account" to Watts's credit report, something that would likely affect his access to cheap borrowing for years to follow. And it was only after a long struggle -- made only slightly easier by the fact that Watts is a consumer attorney, who frequently drags collection agencies into court -- that a correction was made.

In early May 2013, The New York Times reported on a similar case, that of Megan Barringer, who, six years ago, was the victim of another medical billing error. She, too, paid the money she owed, but still received an adverse entry on her credit report. Unfortunately, she was unaware of this, and only found out about it when she applied, in April 2013, for a home loan. That black mark against her meant she could get a mortgage only with an interest rate half a percentage point above what she would otherwise have been offered. And the Times calculated that would cost her an additional $33,000 in unnecessarily high interest payments over the lifetime of her new home loan.

Credit report errors are common

It's bad enough to have a poor credit score as a result of a period of personal financial turmoil. It must be even worse to have one as a result of a simple clerical error, and yet we've know for many years that such mistakes are common. In February 2013, the Federal Trade Commission (FTC) published the results of a survey that revealed just how frequently they arise:

  1. One in four Americans found errors on their credit reports that could impact on their credit scores.
  2. One in 20 consumers had already had their credit score changed by at least 25 points as a result of appealing such errors.
  3. One in 250 had seen their scores jump by more than 100 points when they challenged an error.

No wonder Howard Shelanski, director of the FTC's Bureau of Economics, observed in a press release:

These are eye-opening numbers for American consumers. The results of this first-of-its-kind study make it clear that consumers should check their credit reports regularly. If they don't, they are potentially putting their pocketbooks at risk.

The importance of credit scores

Few will be surprised that Megan Barringer was penalized -- if unfairly -- for the black mark on her credit report when she applied for a home loan. We all know than those with less-than-perfect credit histories generally pay higher mortgage, auto loan and credit card rates -- if they're approved at all. And it's common knowledge that it's often harder and more expensive to rent a home if your credit's spotty.

But there's an even more pernicious penalty, which was highlighted in another New York Times report, this one dated May 11, 2013. Many employers routinely conduct credit checks before hiring new employees. And, with so many applicants for each job now, some are automatically turning down people who are otherwise highly qualified, just because of personal financial issues. The Times related the story of Alfred J. Carpenter, whose job applications have been repeatedly rejected, even though his professional credentials are first class. Mr. Carpenter had lost his old job, and then been injured just as his medical insurance lapsed. As a result, his credit was decidedly shaky, although his skills and talents remained 100 percent intact.

The Times quoted consumer lawyer Chi Chi Wu, who managed to make literary allusions to both Franz Kafka and Joseph Heller in a short quote describing situations like Mr. Carpenter's. She said, "Someone loses their job, so they can't pay their bills -- and now they can't get a job because they couldn't pay their bills because they lost a job." A Kafkaesque version of Catch-22 indeed.

Fixing credit report errors

John G. Watts, the attorney first mentioned in this article, writes a blog that includes helpful advice for those who need to correct errors on their credit reports -- although you need to be aware that some of the information he provides may only apply to Alabama state law. We used this as a source for an earlier article, Five Rules For Correcting Credit Report Errors, which is well worth consulting if you ever find yourself facing this sort of issue.

How do you know if any of your reports contain errors? Well, you're legally entitled to a free copy of each of them once a year through AnnualCreditReport.com, and it's important you check at least that often. But you may be more comfortable paying for a service that allows you to monitor your reports on a continuing basis, possibly the one offered by myFICO.com.

Whatever you do, follow John Watts's lead, and fight your corner. And don't wait, as Megan Barringer did, until it's too late to insist on the correction of errors.

Published 05/20/13 (Modified 11/20/13)


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