One of every five American consumers has an error on his or her
credit report and 5 percent of us endure errors so serious that we
likely are being overcharged for credit card debts, auto loans,
insurance policies and other financial obligations, according to a
comprehensive study issued Monday by federal regulators.
by the Federal Trade Commission, completed in December but just
released, found that 21 percent of a representative group of
American consumers discovered a "confirmed material error" in at
least one of the credit reports issued by the Big Three credit
reporting bureaus -- Experian, Equifax and TransUnion. A "confirmed
material error" involves information that, when corrected, changed
the consumer's credit report.
The study also reported that 5.2 percent of the representative
group found and, with the assistance of the report's researchers,
successfully challenged a mistake so serious that it had lowered
their credit score substantially enough to burden them with higher
The agencies track the credit histories of about 200 million
Americans. If the FTC's findings are accurate, that means some 40
million Americans have a mistake on one of their credit reports,
and 10 million are potentially overpaying as a result.
"These are eye-opening numbers for American consumers," Howard
Shelanski, director of the FTC's Bureau of Economics, said in a
prepared statement. "The results of this first of a 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."
Consumer advocates agreed, both with the significance of the
study and the path of action that should be taken by wise
"Consumers should be concerned about mistakes and omissions in
credit reports that lead to excessive cost of credit," said Walter
Dartland, a former deputy attorney general of Florida and executive
director of the Consumer Federation of the Southeast, a nonprofit
consumer advocacy group. "What is necessary is a plan to reduce
Representatives of the credit reporting industry adopted a
somewhat different perspective. They said the FTC's report showed
that most credit reports are accurate, most errors are
insignificant, and credit card companies, banks and other lenders
-- rather than the data collecting firms -- were primarily
responsible for most of the errors that were found.
Industry: Impact is 'small'
"While the overall number of errors and their impact on consumers'
creditworthiness is small, maintaining accurate credit reporting
data is essential to both lenders and credit bureaus," Stuart
Pratt, president of the Consumer Data Industry Association, which
represents 170 consumer data collection firms, said in a written
statement. "We will continue to work with lenders and others who
provide data to the credit bureaus to make sure the percentage of
material errors impacting consumers is even lower."
Though studies on credit reports' accuracy have been conducted
over the years by the FTC, industry groups and consumer rights
organizations, hard facts concerning the accuracy of credit reports
have been difficult to obtain. The industry has said that a
fraction of 1 percent of all credit report had errors; a widely
quoted consumer advocacy report found that more than half had some
sort of error.
The FTC said the report issued Monday was more comprehensive
than any conducted in the past. Agency officials said this was the
first national study "designed to engage all the primary groups
that participate in the credit reporting and scoring process,"
including consumers, lenders, data furnishers, FICO and the
national credit reporting agencies.
In essence, this latest report came down in the middle, finding
a significant volume of errors that affect many consumers, but also
expressing its findings in carefully nuanced terms.
"Overall, the results of the study suggest that while a notable
number of consumers may have inaccuracies on their credit reports
(21 percent of the participants and 13 percent of the credit
reports have inaccuracies), the impact of these errors on credit
scores is generally modest (an average of an 11.8 point increase in
score) and often there is no change in the credit score of the
report (63 percent of disputed reports do not change score)," the
report said. "For a few consumers, however, the impact is
Broken dispute system
And the errors can be difficult to correct and resolve.
"This is a real dilemma because consumers are [sometimes] faced
with receiving a different version of their credit reports than is
reported to creditors and, even when an error is found, the
[credit] bureaus seem to be unwilling to address the consumer's
concerns and there appears to be no recourse," said David Jones,
president of the Association of Independent Consumer Credit
Counseling Agencies, which represents 32 nonprofit credit
In developing their latest study, the FTC's researchers enlisted
a demographic cross-section of 1,001 American consumers. Together,
the research associates and the consumers reviewed 2,968 credit
Among the findings of the 370-page report:
- Twenty-six percent of the studied consumers found one or more
"potential material errors" in at least one of their credit
reports. A "potential material error" involves information that
could affect your credit score.
- Nearly 13 percent of the studied group experienced a change
in their FICO credit scores as a result of successfully
challenging an error in one or more of their credit reports.
- People with relatively low FICO credit scores at the start
were most likely to see some improvement after checking their
- Most of the discovered and confirmed "material" errors
involved mistakes in the reporting of consumer finance accounts
or collections transactions.
- Perhaps most significantly, 52 of the 1,001 participants (5.2
percent) "experienced a change in score such that their credit
risk tier decreased and therefore [they] may be more likely to be
offered a lower auto loan interest rate," according to the
- A combined 6.3 percent of those with affected credit scores
saw those scores increase by one to 19 points after they
challenged reporting errors, though 2.1 percent saw a 25 to 49
point increase and 2.3 percent experienced a 50 to 99 point
- Demographically, men and women were equally likely to
successfully report a credit score-changing error.
- Consumers between the ages of 51 and 60 were most likely to
find confirmed credit report errors and enjoy credit score
changes, followed closely by those between 41 and 50 and those
- Educational attainment appears to have a strong bearing, with
consumers with no more than a high school diploma far more likely
to be victimized by credit report errors than those with college
Consumers: Check your reports
Though opinions about the significance of the findings differed,
everyone agreed that consumers should protect their interests by
checking their credit reports and swiftly reporting any errors.
"All consumers should be aware that checking credit reports
every year is fundamental to accuracy," said Pratt, the trade
"Your credit report has information about your finances and your
bill-paying history, so it's important to make sure it's accurate,"
said Charles Harwood, acting director of the FTC's Bureau of
Consumer Protection. "The good news for consumers is that
credit reports are free through
, and if you find an error, you can work with the credit reporting
company to fix it."
The federal Fair Credit Reporting Act guarantees consumers the
right to dispute and remove credit report errors, but
CreditCards.com has found that the fixes often are not that easy.
Last fall, its investigation, "
Why the credit report dispute system is broken
," examined how the credit agencies' automated system backfires on
"The dispute process has absolutely no value whatsoever for
consumers," Leonard Bennett, a consumer lawyer in Newport News,
Va., who has repeatedly testified before Congress about the credit
report dispute system, told CreditCards.com for that report.
Sunday, the CBS-TV show "60 Minutes" also reported on what it
called a broken system for resolving credit report disputes. In
response, Pratt denied that the system was broken and again urged
consumers to check their credit reports every year for what he
called rare errors.
"Federal courts across the nation have repeatedly found that the
credit reporting industry dispute process not only follows the
letter of the law but its spirit, as well," Pratt said. "The system
Experian also expressed faith in the credit bureaus' accuracy.
"The report shows that the vast majority of errors on credit
reports have no bearing on credit scores, for example
outdated information on a consumer's phone number or address," the
bureau said in a
posted Monday. "About 2.2 percent of reports contained an
identified error that shifted consumers to a more favorable lending
tier when the data furnisher corrected the inaccuracy. That said,
Experian is not satisfied with this result and we continue to work
toward ensuring credit reports are 100 percent accurate."
So, what should credit card customers and other American
"Consumers should do everything they can with the bureau that is
showing the errors and also petition the
Financial Protection Bureau
," said Jones, the consumer advocate. "It will take time to
resolve this, because the bureaus are in denial."
10 surefire ways to strip errors from your credit