Nov. 1, 2012
It is undisputed that lenders rely greatly on credit reports when evaluating a potential buyer for a mortgage loan. What is in question is how accurate the credit reports are.
Some studies show that many credit reports contain errors – errors that can significantly affect the amount of interest borrowers pay or if they are even approved for a loan at all.
Past studies from consumer groups have indicated that 30% to 80% of credit reports contain errors, with many of those errors being significant enough to cause the borrower financial harm.
A recent study by American Consumer Credit Counseling, a nonprofit providing free credit counseling, finds the error rate to be nearly 90%.
Many credit bureaus dispute this, arguing that a recent study conducted by an industry trade group, the Consumer Data Industry Association, finds that only roughly 20% of consumer credit reports contain errors, and not even 1% of those consumers who do are significantly affected by these errors.
Incorrect credit report scores do not just affect potential borrowers … they could also affect an applicant for a lease, as landlords frequently examine a potential tenant’s credit report before deciding whether to approve that person.
To help ensure the accuracy of credit-report scores, consumers should regularly order the free annual credit reports they are entitled to … one from each of the three major credit bureaus: TransUnion, Experian, and Equifax. If you find errors, contact the company that provided the report. If you are interested in obtaining your FICO credit score – the score most commonly used by lenders – you can go to myfico.com or buy scores from one of the credit bureaus.
A word of warning: According to a report by the Consumer Financial Protection Bureau, which now regulates many credit-reporting companies, some lenders use their own formulas to produce their own credit scores, resulting in as many as 20% of consumers receiving a different score then that which a lender would use.