Consumer advocates are constantly referring to credit reports as being riddled with errors. Industry representatives dismiss those assertions and suggest that credit reports have very few errors relative to the enormous amount of information they maintain. So, who has it right?
First off, there have been only two fairly recent and recognized studies on the topic of credit report accuracy. One was performed by a consumer advocacy group called the US Public Interest Research Group (PIRG) and the other was performed by a credit industry funded organization called the Policy and Economic Research Counsel (PERC). PIRG found that 70% of credit reports surveyed contain errors of some sort while PERC found that less than 1% contained meaningful errors. The Federal Trade Commission will be releasing a study on credit file accuracy later in 2012.
The purpose of this isn’t to dissect the aforementioned studies. The purpose is to address the issue of defining a credit report error. Given the gap between PIRG’s and PERC’s study results it’s clear they have different definitions of “error” and I suppose you could define it any way you like to help mold your study results. Some options would be:
Strict – If any data on your credit report is incorrect then that credit report contains an error. That would mean if a former address is spelled incorrectly, error. If your employment is incorrect, error. If your former maiden name is spelled incorrectly, error. Strict seems, well, too strict.
Reasonable – A credit report contains an error if it has legitimate errors on credit report trade, inquiry, public record, or collection items. These items could be outdated, contain errors, or not your item at all. Reasonable seems reasonable enough that most people would agree that these are, in fact, credit report errors.
Score Impact – A credit report contains an error if the erroneous item has a negative impact on your credit score. The theory here is that a cosmetic error will have no real impact to your credit scores so who cares? And, that a non-cosmetic error may not have a real impact to your credit scores, so who cares? So if you had an incorrect collection on your credit report that was already full of other accurate collections the score impact could be meaningless, so is that really an error? This one is intriguing but it changes the definition of “error” to “damaging error.”
Incomplete – I was being deposed by an attorney for a large lender a few weeks ago and his line of questioning suggested that accounts that were not being reported would constitute an error. The problem is this…credit reporting is voluntary, so the fact that a lender doesn’t report to a credit bureau doesn’t mean the credit report is erroneous. I’d suggest that in order for a credit report to be categorized as erroneous it has to actually CONTAIN something wrong.
What do you think should be the standard for credit report accuracy?
A credit report error can be defined in many different ways. Ultimately however, worrying that you might have an error on your credit report that negatively impacts your credit score is not something that you should be losing sleep over. Even though I’m a superhero, my credit report is just as susceptible to errors as yours, and I sleep just fine.