Credit reports detail your financial history and include credit activity, payment history, loan amounts, and information on creditors. Positive information in a report shows your financially responsible.
Each month, creditors supply updated information to credit reporting agencies (CRAs), Experian, TransUnion, and Equifax are the major ones, who use the data to compile an overall summary of your credit history and assign a credit score. The agencies then sell the reports to businesses, allowing them to gauge whether you are a good candidate for loans, housing, and/or employment.
Credit scores are generated by two companies: the Fair Isaac Corporation (FICO) and VantageScore. Though the data gathered is the same, your final scores from each company may differ based on how each entity weighs the information, which credit agencies supplied the data, and whether or not all your lenders sent the data to all three major CRAs.
Your score will change each month based on your credit activity and payment history for the preceding month, determining the strength of your creditworthiness. You will be assigned a score that ranges in one of the five levels of creditworthiness:
- Exceptional: Scores ranging from 800 to 850.
- Very good: Scores ranging from 740 to 799.
- Good: Scores ranging from 670 to 739.
- Fair: Scores ranging from 580 to 669.
- Poor: Scores ranging from 300 to 579.
The higher your score, the more likely potential lenders, landlords, and employers will see you as creditworthy. The lower your score, the less likely you are to be approved. Most lenders will not approve your applications if your score is in the poor or fair category, and some may not approve you even if your score is in the good category. Your score is also a significant factor in determining the interest rate you will pay as well. The lower your score, the higher your interest rate.
Negative credit information in your credit report, such as late or missed payments and more debt than income, can affect nearly every aspect of your life for years. Delinquencies, bankruptcies, repossessions, and lawsuits can remain on your credit report for up to seven years by law under the Fair Credit Reporting Act (FCRA).
Scoring companies use both the positive and negative contained in your credit report to generate your score. The most commonly used are the FICO score, which is based on the weight and percentage the agency assigns to each of five the following categories:
- Payment history (35 percent): Your payment history is the most important factor, as potential lenders want to see that you are financially responsible and make your payments on time.
- Amounts owed (30 percent): Another weighty category, the amount of credit you owe on current open accounts and whether you are overextended and may have difficulty in making payments.
- Length of credit history (15 percent): The longer your credit history, the higher your FICO score as long as you have a positive financial history.
- Mixed credit (10 percent): Your score is also dependent on the various types of accounts you have open and prefers a mixture to give a better overall report on your ability to maintain and make payments on each type.
- New credit (10 percent): While having a mixture of multiple accounts is generally considered positive, opening multiple credit accounts in a short time period can make you appear “risky.”
Credit agencies must follow regulations set in the FCRA to ensure that all the information they gather and distribute is fair and accurate. The law also encompasses financial institutions and any entity that sells your medical records, rental and check writing history, and businesses who use credit reports in hiring practices. Despite the regulations and the agencies’ efforts to provide accurate information, errors can, and do, happen.
As negative information lowers your score, errors leading to the negative can also lower your score, affecting your ability to secure credit, including:
- Higher mortgage interest rates.
- Higher home and vehicle insurance premiums.
- Higher credit card interest rates.
- Impact government clearances.
- Higher student loan rates.
- Loan and credit denials.
- Denial of housing.
- Loss of job opportunity.
Each of these items can be costly, combined, they can cost you thousands of dollars as a result, which is why you should check your credit report regularly. Under the FCRA, you are entitled to one free copy of your report from each agency per year. Each also offers paid subscriptions, allowing you to access your report at any time. Regular reviews will help you spot errors and discrepancies along with any signs of identity theft, which can have serious consequences that can take years to correct.
Can Errors on My Report Be Corrected?
Under the FCRA, you are entitled to dispute incorrect information in your credit report, and the CRAs are required to investigate any disputes your request. When filing a dispute with the credit agencies, the more information you provide them upfront, the quicker and easier it will be for them to begin an investigation. Include the following:
- Copies of the negative credit reports, highlighting the incorrect portions.
- Credit card statements.
- Loan documents.
- Birth records, death certificates, or divorce documents.
- Copies of government-issued identification, such as a driver’s license or passport, to prove your identity.
- Social Security number.
- All addresses, current and past, for the last two years.
- Utility bills, insurance, or banking information confirming your addresses.
Once compiled, draft a written dispute letter explaining your reasons for filing, note the supplemental information you are including, and request the incorrect information be changed and updated. Send the packet to the appropriate agency or all three. Mail the packets via certified letter, which requires a signature and provides you with delivery confirmation and the date received. Agencies have 30 days from the day they receive your dispute to open an investigation and inform you of the results.
If you wish, notify the entities who are providing the information to the reporting agencies of the discrepancies and that you have filed a dispute. While there is no guarantee they will act until told by the CRAs, notifying the businesses often causes them to stop reporting the incorrect information until all investigations are completed.
Timing is everything. It is crucial that you act on incorrect information as soon as you discover it. The longer the information is contained in the report, the longer it will negatively affect your score.
What Happens After I File a Dispute for the Errors on My Credit Report?
Credit agencies must act on the dispute within 30 days, which includes informing the entities who supplied the incorrect information of the dispute. If the investigation reveals that the information is indeed incorrect, they are required to correct it, as are the entities supplying the data. You will receive written notice of these actions and free copies of the corrected reports for your records. The CRAs are required to also provide notice copies of the corrected report to any who reviewed your report during the previous six months for creditworthiness purposes, and the previous two years for any who reviewed your report for employment purposes.
During the 30-day period, the investigation will stop if the agencies deem the dispute to be irrelevant or frivolous or if they need to request additional information to continue the investigation. The latter is why you should compile as much relevant information as possible when filing so the investigation will remain active. You will be notified of any decision affecting your dispute.
Pittsburgh Credit Report Attorneys at East End Trial Group Help Clients Dispute Inaccurate Credit Information and Scores
Inaccurate credit reports can have a direct negative impact on your creditworthiness and score, hindering your ability to secure a loan, line of credit, housing, and employment. If you believe the information contained in your credit report is incorrect, our experienced Pittsburgh credit report attorneys at East End Trial Group can help. Call us at 412-223-5740 or contact us online for a free consultation. Located in Pittsburgh, we serve clients throughout Pennsylvania.