FTC Says 5 Percent of Consumers Have Credit Report Errors, Leading to Costly Consequences

Feb. 11, 2013 — -- A Federal Trade Commission study released on Monday revealed that 5 percent of consumers had errors on one of their three major credit reports, potentially leading to higher costs for loans and insurance.

It's a story familiar to Vernon Stanton III, 37, from Hobbs, N.M.

Stanton said the credit bureaus mixed his credit history with those of other people with a similar name. When he moved to Kansas City, Kan., for a new job in 2000, he said he was rejected from rental properties because of his credit history. He therefore had to live in a motel temporarily.

Read more: 7 Quick Fixes to Improve Your Credit Score

During the dispute process, he said he had to have ongoing communication with the credit bureaus. Most recently, he said TransUnion mistakenly recorded a Verizon phone bill in Puerto Rico on his credit history though he has never been to Puerto Rico.

"I would get so frustrated dealing with it," Stanton said of the dispute process.

Through much diligence and keeping detailed records of the dispute process and his finances, his credit history is now accurate.

The FTC said it was the "first major study", as directed by Congress, that looked at all primary groups that participate in credit reporting and scoring. The study analyzed 1,001 participants who reviewed 2,968 credit reports to identify and correct possible errors on their reports.

Read more: How Will You Score On a Credit Score Quiz?

Gerri Detweiler, director of consumer education for Credit.com, said the report mirrors other studies about credit history inaccuracies.

The Consumer Data Industry Association, which represents credit reporting companies, previously found that 19.2 percent of consumer credit reports had "potentially" inaccurate information. The association said that nearly half of those related to inaccurate header information, such as an incorrect name of an employer or a misspelled street name, which would have no effect on credit bureau scores.

Detweiler said that the burden is on the consumer to check if you have an error in your credit report.

"You won't know unless you looked at it, you're the only one who could figure it out," Detweiler said.

If you do find an error, Detweiler suggests you take detailed notes of your correspondence when you file the dispute with the credit bureau.

The three major credit bureaus, Equifax, Experian and TransUnion, provide free annual credit reports under the Fair Credit Reporting Act at annualcreditreport.com.

In some cases, a consumer will have to contact the creditor to fix an error.

According to the 208-page report, 26 percent of the participants identified at least one "potentially material error" on at least one of their three credit reports.

Though 206 consumers, or 21 percent of the participants, "had a modification to a least one of their credit reports after the dispute process," only 129 people, or 13 percent of participants, experienced a change in their credit score as a result of these modifications.

The study found that 211 reports and 129 consumers experienced modifications that resulted in a score change.

Of the 211 reports with a score change, 62 reports, or 29 percent of reports with a score change, had a score increase of more than 25 points. And 129 reports, or 61 percent of reports with a score change, had a score increase of more than 10 points.

Read more: 8 Credit Score Myths Debunked