Round up 20 friends, co-workers or strangers and chances are good that one of you has a credit report error so bad that it could cost you more money on loans or insurance, according to a new government study on credit report accuracy.
The Federal Trade Commission study released Monday showed that 5.2 percent of the 1,001 consumers in the study qualified for a lower interest rate on an auto loan after an error in one of their credit reports was corrected.
Overall, the agency found that 1 in 5 consumers found a "confirmed material error" in one of their credit reports from the three major bureaus -- Experian, Equifax and TransUnion. A confirmed material error was one that resulted in a modification of the consumer's original credit report.
"The most meaningful result from this study is the sheer volume of reports that have potential errors," says John Ulzheimer, president of consumer education at SmartCredit.com. "There are a lot of credit reports that are wrong."
The most common confirmed errors related to account information and collections items, the study found. In all, 2.2 percent of the 2,968 credit reports reviewed in the study contained at least one error that, when corrected, resulted in a higher credit score and lower interest rate for the consumer.
"So, roughly 98 percent are accurate to the extent that the consumer is not getting a less advantageous deal when they apply for a loan, which is pretty good for the industry," Ulzheimer says. "But frankly when someone gets a higher interest rate or denied credit because of an error, it doesn't matter if the rate is 2.2 percent or 40 percent, it's wrong."
There's a silver lining, however. Four out of 5 consumers who filed disputes with a credit reporting bureau over the error had their reports changed, the study showed. Thirty-seven percent had all items corrected as they wanted, while 42 percent had some of the items modified.
"This study suggests there are millions of credit reports out there with errors on them and they won't get corrected until you do something," says Ulzheimer. "Yet, every single year, 96 percent of free credit reports go unclaimed."
Americans are entitled to a free credit report from the three major credit agencies once every 12 months under the Fair Credit Reporting Act. Consumers can claim their reports at AnnualCreditReport.com.
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