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.
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.