Fixing credit report errors can be the easiest way to lower rates and better loans
Each additional percentage point of interest adds approximately $47,000 to a $200,000 home loan when paid over 30 years.
An interest rate of 6% will cost you $1,199 a month and add up to $431,676 over three decades. That’s bad enough but consider just a percent more and the same loan will cost you $1,330 a month and $479,018 over 30 years.
Getting the best rates on loans can mean monthly payments you can afford and saving tens of thousands of dollars.
So how do you get the best rates?
With a higher credit score, of course!
And you get a higher credit score with a credit report that shows you pay your bills on-time.
The bad news is that even if you pay your bills every month and protect your credit like a helicopter parent, you could still be victim to higher interest rates.
Anywhere from 5% to 25% of credit reports contain serious errors, depending on different reporting sources. That’s as many as one-in-four Americans with an error on their credit report that could be keeping them from getting a loan or from getting the best rates.
The most common are outdated personal information, mistaken or fraudulent accounts and incorrect account details. The good news is that fixing credit report errors is one of the easiest credit fixes you can do.
Here’s how to go about checking for and disputing those pesky credit report errors.
Step 1: Review your credit report for errors
Once you have your reports printed out (yes, really print them out), go through each one, page by page. What are you looking for? Here’s a quick list:
- Incorrect our outdated personal information. Example: There’s a mailing address you’ve never had.
- Wrong account details. Example: Your report shows that your Discover card has a $5,000 limit, when it should really be $2,500.
- Incorrectly attributed accounts. Example: There’s a credit card account that belongs to your parents, not you.
- Fraudulent accounts. Example: You find a student loan on your credit report, but you’ve never applied for a student loan.
- Inaccurate activity. Example: You’ve never made a mortgage payment late, but your mortgage shows otherwise.
That list isn’t exhaustive, but it should give you an idea of what to keep a lookout for. If you find a credit report error, highlight or circle it. Make sure to check to see if the error is on one credit report or all three.
Important note: You may notice that one of your credit files is missing from one of two of your credit reports. This can happen if you have a credit line from a small company like a credit union. Not all companies report to all three bureaus. Before you assume it’s an error, check with your creditor to see who they report to.
Step 2: Gather proof of the error
Before you contact any credit bureau about a credit report error, make sure you have some proof to support your claim. For instance, if you find a mortgage that was opened in your name in 1974, but you were born in 1972, you should provide proof of your birth date.
Step 3: Write to the credit bureaus
It may be old-fashioned, but the best way to dispute an error on your credit report is to draft a dispute letter. You’ll send this letter to the credit bureau(s) reporting the error to get it corrected.
Make sure to send it “return receipt requested” so that you’ll know when it’s been received. The FTC has a great sample dispute letter; use that as your guide.
Step 4: Make a copy of everything
Seriously. Copy the letter, the documents you’re using as proof and the page(s) of your credit report with the errors clearly marked. Keep these documents filed away so you can easily find them later. Once you have your copies, mail your dispute letter.
Step 5: Wait at least 30 days before following up on the credit report error
Credit bureaus are required by law to investigate your claim, and they typically do so within 30 days of receiving your request. The credit bureau should send notification to the information provider (like your credit card company or mortgage lender) about your dispute.
The information provider will investigate and let the bureau know the results. If your dispute is valid, the information provider also has to notify the other two credit bureaus.
If it’s been more than 30 days since the credit bureau received your dispute, and you haven’t heard anything, contact the credit bureau to get an update on the status.
Once the credit report error is fixed, you should notice a big jump in your credit score within a month or two. A higher credit score not only means lower interest rates but could also lower your insurance premiums.
What can I do if my credit dispute wasn’t successful?
There are a couple of reasons why these disputes fail:
It was considered frivolous. This is the only scenario in which a credit bureau won’t even bother to investigate your claim. If you don’t consider it to be frivolous, you can attempt your dispute again, following the above steps.
It wasn’t an error. If you’re trying to remove a negative—but accurate—item from your credit report, you won’t be able to dispute it. Instead, you’ll have to take the slow and steady route of rebuilding your credit.
The credit bureau says it’s not an error, but you have proof otherwise. This can happen from time to time. Once again, you can spend time repeating the dispute steps, but you might have a better, second option: a direct dispute.
If you’re disputing an item that has come from an information provider—like a credit card company or mortgage lender—you can go directly to them.
Submit a dispute letter to the information provider, using the same FTC guidelines, but also make sure that you include your full name and account number with the company. Since the dispute with the credit bureau didn’t work, this direct dispute could be a great alternative.
Getting credit report errors removed can be one of the fastest ways to increase your credit score. Consolidating your debt or paying on-time will help rebuild credit but could take months to add 20 or 30 points to your FICO. Removing credit report mistakes can boost your score by 50 or 60 points within a month or two and will help you get the best rates on new loans.
About the Author
Joseph Hogue is a financial expert and investment analyst. After serving in the Marine Corps, he started his career investing in real estate before becoming an investment analyst for some of the largest private investors. He's appeared on Bloomberg and on CNBC as an investment expert and has published ten books in personal finance. Now he helps investors reach their financial goals and invest in the stock market with some of the same advice he used when working for the rich.