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In this day and age a person’s credit score and credit files can seem as critically important as their fingerprints or birth records. Credit governs our lives in so many ways and credit history can have an impact on everything from qualifying for a credit card to how well we rate on a job application.
All sorts of people and companies rely on credit reporting to make judgments about us including financial institutions, insurance companies and potential employers. So it is especially disturbing to learn that the agencies entrusted with those precious and confidential details about us sometimes make mistakes or cut corners. We know about these shortcuts and errors thanks to an in-depth study recently published by the Federal Trade Commission (FTC). A Congressional mandate directed the FTC to conduct research into the accuracy of credit reports and to provide updates every two years from 2004 through 2012, with the final report scheduled for release in 2014.
The reporting is the first of its kind to encompass all the primary entities involved in credit reporting and scoring. Those include lenders and others who furnish credit information, the Fair Isaac Corporation that tabulates FICO scores, as well as national credit reporting bureaus. The study had statistical validity, too, because it used more than 1,000 participants, looked at nearly 3,000 credit reports, and chose consumers who represent a typical cross section of the general public.
Maintaining Data Unrelated to Your Credit
One thing that the FTC explained was that credit bureaus harvest data about us that may seem to be completely unrelated to our borrowing and credit. Experian, for example, owns salary information on more than 30 percent of all working adults currently living in the United States. Many people, including some prominent Congressional legislators, believe that kind of data gathering could potentially infringe on our rights of privacy. Skeptical consumers are also not exactly comforted by the fact that credit agencies also track our home address and our work history.
Lenders Defend the Practices
Lenders justify these practices, however, and say that they use this kind of information to evaluate our credit worthiness. They argue that behaviors like changing addresses frequently can be indicative of financial instability. Do you move from job to job on a frequent basis? Lenders say that kind of activity may be construed as a sign that you are a higher credit risk. They also want to be able to find people who fail to repay their loans. For that reason they are willing to pay credit agencies for updates on where borrowers live.
Credit agencies also point out that they need to know where American’s live in order to make sure they are correctly identifying people who apply for credit. Some find that defense a little weak, however, since the credit bureaus already know people’s Social Security numbers. A Social Security number is, after all, one of the most precise ways to correctly identify any citizen of the United States, but apparently knowing your Social Security number isn’t enough.
Social Security Number Mix-Ups
One woman from Arkansas interviewed for a recent New York Times article said, for example, that she was denied employment and credit after her own credit records were mistaken for those of someone with the same name and birthday. That other person just so happened to be a convicted felon. Oops.
Her terribly problematic case of mistaken identity was attributed to shortcuts that credit reporting bureaus take when it comes to matching up people with their Social Security numbers. Since those tightly protected numbers are entirely exclusive and unique, it seems unbelievable that such a blunder could happen. The problem is that credit agencies do not always go to the trouble of using the entire string of nine digits in Social Security numbers. Instead they use only some of those numbers. Since many people share at least a few of the same digits, that method automatically increases the mathematical probability that your credit identity may be confused with someone else’s.
That could conceivably be great if you were misidentified with somebody who has golden credit and billions of dollars in assets. Who wouldn’t want to be financially mistaken for Warren Buffett or Bill Gates? But in the real world it is more likely that you will be accidently tied to the credit history of a deadbeat borrower whose lousy track record will torpedo your chances of having your credit application approved.
The Need to Keep an Eye on Credit Agencies
What can you do in the face of this kind of troubling revelation? So far the FTC examination has revealed that one out of every five Americans has at least one mistake in their credit reports managed by the “Big 3” agencies; Experian, TransUnion, and Equifax. It also found that 25 percent of consumers identified errors that could impact their credit scores, and that four out of five consumer disputes resulted in some credit file modification.
Additional findings revealed that about one out of every 20 of those people who challenged mistakes in their reports experienced a change in their credit score of more than 25 points. One in 250 actually saw their score jump by as much as a whopping 100 points. Those odds may not be good enough for placing a bet at the Kentucky Derby, but they do validate the fact that credit file accuracy can make a huge difference. That makes it essential for every concerned consumer to be proactive about monitoring their credit reports on a regular basis to find and dispute inaccuracies and discrepancies.
Have free time on your hands? View the full report, here.
Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by any card issuer.
*The content in this article is accurate at the publishing date, and may be subject to changes per the card issuer.