How to Spot Credit Report Errors Before It's Too Late

NEW YORK (MainStreet) — Credit is not only a way for consumers to extend their spending abilities; it's also used to judge financial responsibility — all from information meticulously listed on credit reports.

A February study from the Federal Trade Commission showed that 42 million Americans may have errors on their credit report. These errors cause unnecessary blemishes that result in lower credit scores, which means higher interest rates on mortgages and car loans — all because of mistakes that are no fault of the consumer.

If you’re planning on checking your credit report on AnnualCreditReport.com, a government-affiliated site, there are a few items you should be watching out for that can indicate various errors.

“Look for derogatory marks, which can be missed payments, defaults, liens and garnishments," says Kenneth Lin, founder and CEO of CreditKarma.com. "These are the big uh-ohs and if not corrected, can cause your credit score to drop 100 to 200 points,”

Having a 760 credit score will put you within reach of reduced interest rates on credit, while a 660 score resulting from an error on your credit report is nowhere near perfect and can hurt you on interest rates.

Another red flag to watch out for are missing credit accounts. “If you have 20 credit accounts and you only see one there, you have a problem," Lin adds. "But if you have 20 and 19 are stated on the report, with one missing, that’s not a big deal because not all lenders report to all bureaus."

If you come across unfamiliar defaults or delinquencies, take action to get them fixed.

“Many people write a dispute letter to the credit bureau, but they’re simply reporting what the lender told them," Lin says. "Instead, head to the source, which is the lender."

If you contact the bureau, the bureau will verify your claim with the lender. If the lender does not respond within 30 days, the credit bureau is required to remove the mistake from the report. But the following month, when the lender reports the mistake or delinquency to the credit bureau, the mistake is likely to reappear.

“Only when the lender says they have no record of your delinquency is this a credit bureau mistake,” Lin says.

Clearing up the issue with the lender will prevent an incorrectly reported mistake in future months. This is simply a matter of calling up the lender, explaining the nature of the error and, in some cases, providing proof a mistake exists. For example, your report may show that you defaulted on your car loan, but you may have documentation showing that you paid off the loan in full. In this case, presenting the documents to the lender makes your case more credible.

Lin also suggests documenting every call you have with the lender and credit bureau, in the event the process of resolving the mistake takes longer than expected.

On the bright side, if you’re fixing an incorrect delinquency, once it’s gone from the report, your score will jump back up within weeks.

Scott Gamm is founder of HelpSaveMyDollars.com and author of the forthcoming book MORE MONEY, PLEASE.

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