Costly Credit Report Errors Common

Here's a compelling reason to keep closer tabs on your credit report -- 79 percent of credit reports examined in a recent survey contained either serious errors or other mistakes of some kind.

What's more, there's a one-in-four chance your credit report contains an error serious enough to cause you to be denied credit, according to "Mistakes Do Happen: A Look at Errors in Consumer Credit Reports," a recent report by public issues watchdog U.S. Public Interest Research Group (USPRIG).

Errors can cost you in the form of higher financing costs and, while errors can be corrected, by the time they are, interest rates and home prices could have risen. That can cost you still more or put a home out of your financial reach. Mortgage interest rates, for example, have risen almost a full percentage point since March this year.

On a $500,000 mortgage, with a fixed interest rate of 5.38 percent (this year's average low point on March 18, according to Freddie Mac) your monthly principal and interest would have been $2,801.41. 

Compare that to financing the same mortgage with the June 17, 6.32 fixed interest rate (this year's high mark thus far) -- $3,101.39. Higher home prices compound the financial impact of a delayed purchase. Median home prices in Silicon Valley, for example, rose nearly $60,000 in a single month earlier this year.

USPRIG collected 200 surveys from adults in 30 states and reviewed their credit reports for accuracy and found:

• Eight percent of the credit reports were missing major credit, loan, mortgage, or other consumer accounts that demonstrate the creditworthiness of the consumer.
• Twenty-two percent listed the same mortgage or loan twice.
• Twenty-five percent of the credit reports contained errors serious enough to result in the denial of credit.
• Thirty percent of the credit reports contained credit accounts that had been closed by the consumer but incorrectly remained listed as open.
• Fifty-four percent of the credit reports contained personal demographic identifying information that was misspelled, long-outdated, belonged to a stranger, or was otherwise incorrect. 
• Seventy-nine percent of the credit reports contained mistakes of some kind.

Credit reports -- generated by the big three credit bureaus, Equifax, Experian and Trans Union -- are a compilation of your creditworthiness based on information collected from banks, creditors, public records and other sources. A financial resume, the reports also contain a sort of financial SAT or credit score that is a numerical representation of the likelihood that you will default on a loan.

You have a right to examine your credit report and your credit score and you should exercise that right every year -- more often when you plan to apply for credit for a large purchase, including a home loan, second mortgage or refinance loan.

In December 2003, Congress passed the Fair and Accurate Credit Transactions Act (FACT Act), which included the right to a free credit report every 12 months and a number of provisions designed to improve the accuracy of credit reports.

Your ability to exercise your right to a free credit report rolls out over a nine-month period beginning on the West Coast in December this year and finishing on the East Coast in September 2005.

You may not want to wait for the free report and pay the $10 or so now to obtain your report, especially if you are in the borrowing mode.

"It is outrageous that inaccurate credit reports could damage one-in-four consumer's ability to buy a home, rent an apartment, obtain credit, open a bank account, or even get a job," said Ed Mierzwinski, USPIRG Consumer Program Director.