We expect certain information to be infallible; however, such an expectation could prove financially fatal especially as it pertains to the veracity of credit reports. According to the Federal Reserve, a credit report is a record of an individual’s credit history that includes his or her identity (e.g. name, address, date of birth, full or more often partial Social Security number, and possibly employment information), existing credit, public record as well the companies or individuals who have previously requested a copy of the report.
This information is commonly generated by one of the three major credit bureaus — Equifax, Experian and TransUnion. Lenders, insurers, employers and others then use the generated report to assess an individual’s ability to manage his or her financial responsibilities as defined by a 3 digit score ranging from 300 to 850 where 300 indicates you’re considered unlikely to repay loans and 850 is considered likely to repay loans. Unsurprisingly, an individual’s credit score determines the loans he or she can qualify for and subsequently the interest rate to be paid to lenders. Indeed, poor credit can prevent a person from purchasing certain essentials such as living quarters or a car.
Given the significance of this report, it is surprising how disturbingly likely it is for mistakes to appear on an individual’s credit report. In particular, the problem arises when the three mentioned credit bureaus scour records to find information about individuals that can be entered into mathematical algorithms to spit back a credit score. Unfortunately, as Chi Chi Wu of the National Consumer Law Center explains to The Huffington Post, credit bureaus often use a partial name match or only seven of nine digits of an individual’s Social Security number in order to determine what accounts belong to a person.
In his words: “They do this because they want to make sure that every account associated with a consumer gets included.” However, issues arise when identities are mistakenly matched. “This frequently happens with family members who have similar names and similar Social Security numbers, or especially with the father/son, junior/senior-type issue,” Wu continued.
Why don’t credit bureaus match entire names or Social Security numbers? As Susan Shin of the New Economy Project said, “They err on the side of giving too much information [to lenders], even if it’s not accurate. The bureaus’ real customers are lenders, like the banks, and seeing all potentially negative information about a person could give banks an excuse to charge that person a higher interest rate.”
Beyond this supposed malfeasance, errors can also appear because of deliberate identity theft in which a person assumes your identity and you assume their debt. There are a number of steps you can take to help prevent this from happening, and you can also get free identity theft insurance to help if ID theft does occur.
Beyond identity theft, if an individual is divorced, credit information from his or her former spouse can sometimes wrongly appear on a credit report. Another common way errors appear on credit reports is when delinquencies have been resolved, but credit-reporting agencies fail to report these resolutions. These types of mistakes can generally be categorized as consumer errors (the errors an individual can make filling out applications), furnisher errors (the errors made by companies reporting to credit bureaus) or credit reporting agency errors as discussed above. Together, these inaccuracies add up to create a situation in which errors are more likely than we’re taught to believe. In order to ensure the accuracy of an individual’s credit report, experts suggest that one should review their credit reports at least once a year.
(Image courtesy of Nick Webb)