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Imagine the following nightmare scenario. You’ve found a house that checks off all your boxes and you’ve decided to buy it. When you meet with a loan officer to apply for a mortgage, you receive some bad news: your credit scores are too low to qualify for financing.

This news comes as a complete shock. After all, you’re careful to pay all of your bills on time. You can’t recall being late on any payments to creditors in years — or ever. You thought your credit scores would be in good shape.

As you look over your credit reports from Equifax, TransUnion and Experian you discover some very unsettling news. There are some accounts on your credit reports that don’t belong to you. And those accounts are full of negative information.

The reason you can’t qualify for a loan isn’t because of anything you did wrong. It’s because of errors or fraudulent information on your credit reports.

Millions of credit reporting errors

Each of the three major credit reporting agencies maintains files on some 220 million American consumers. The bureaus genuinely do their best to maintain accurate credit information, but with the sheer volume of files, there’s a lot of room for error.

The Federal Trade Commission conducted a study which found that one in five consumers discovered mistakes on at least one of their credit reports that might impact their credit scores.

However, many (perhaps most) of the errors on credit reports aren’t actually caused by the credit bureaus themselves. Rather, data furnishers like banks, creditors and collection agencies can accidentally report incorrect information to the credit bureaus. The bureaus, unfortunately, have no way of knowing a piece of information on your credit report is wrong – unless you tell them.

Other credit reporting errors can occur when the credit bureaus inadvertently mix the files of two consumers together. This often happens to people with similar names and similar addresses, such as John Doe and John Doe Jr. that live on Main Street.

Finally, some credit reporting errors are the result of identity theft and fraud. Yet again, the credit bureaus can’t know that an account doesn’t really belong to you unless you make them aware of the problem. This is why it’s critical to check your three credit reports for accuracy on a regular basis.

Checking your credit reports for errors

The Fair Credit Reporting Act (FCRA) gives you the right to check all three of your credit reports free of charge once every 12 months.

The Federal Trade Commission lists several other situations where you might be eligible for additional free credit reports as well:

  • When a company denies your application for credit, insurance or employment (or approves you for less attractive terms) based on your credit. This is known as “adverse action.” You can request your free credit report(s) within 60 days of receiving an adverse action letter in the mail.
  • If you’re unemployed and looking for a job within the next 60 days, you’re entitled to a free copy of your credit report.
  • Being on welfare qualifies you for a free credit report.
  • Victims of fraud or identity theft may request free copies of their credit reports.

You can also access a free copy of your TransUnion credit report and score by creating an account with Bankrate.

Checking your own credit reports will never damage your credit scores. If you’ve heard differently, it’s a myth.

Once you have copies of your three credit reports, it’s a good idea to go over each of them carefully. Make a list of any mistakes or suspicious information you find.

Remember, all three of your credit reports matter because you don’t have any control over which report(s) a lender will use when you apply for financing or insurance. It’s smart to review all three of your credit reports, not just one or two of them.

Disputing mistakes

The FCRA gives you the right to dispute any information on your credit report which you believe is incorrect. When you disagree with a piece of information on your credit report, you can contact the credit reporting agency to request an investigation. (Keep in mind, if an error is on all three of your credit reports, you’ll need to dispute the mistake with each credit reporting agency separately.)

Here’s how to reach each of the major credit bureaus to submit a dispute:

Equifax

P.O. Box 740256

Atlanta, GA 30348

Experian
P.O. Box 4500
Allen, TX 75013
TransUnion
P.O. Box 2000Chester, PA 19016

The Federal Trade Commission even provides a sample dispute letter you can use for this purpose.

Be careful with online and phone disputes

You can also submit credit disputes online or over the phone, but that doesn’t necessarily mean you should. Your best bet is probably to opt for good, old-fashioned snail mail (certified) so you can easily document your contact with the credit bureaus if the problem isn’t fixed and you need to escalate your situation to a court of law. (Sometimes people don’t know what else to do if disputes fail to remove negative, incorrect information from their credit reports.)

Online disputes can also restrict how much room you have to communicate the reasons you disagree with the information appearing on your credit report. A dispute without sufficient information might hurt your chances of getting the offending item deleted from your credit report. Lack of information might also hurt you if you ever need to prove in court that a credit reporting agency didn’t investigate your claim properly.

Finding reputable credit repair help

If you prefer to hire a professional to handle the dispute process for you, it’s not illegal (contrary to popular myth). It’s your right to find a reputable credit repair company or attorney to work on your behalf.

Just remember, you don’t have to pay anyone to submit disputes on your behalf. The FCRA requires the credit bureaus to accept disputes directly from consumers, free of charge.

It’s worth noting that a credit repair company can’t do anything for you that you can’t do for yourself. Of course, the same can be said of tax preparers, pet groomers and professional movers. Yet, many people will happily hand over money to have someone else handle these less-than-pleasant tasks on their behalf.

If you do opt to hire a credit repair professional, keep the following in mind:

  1. Work with a reputable company who won’t overpromise results or overcharge for their services. Searching for a company that is accredited by the National Association of Credit Services Organizations (NACSO) may be a good place to start.
  2. Never work with anyone who advises you to do something illegal, like changing your Social Security number or using an EIN or CPN number to apply for credit accounts. You could get yourself into trouble, legally speaking, if you make this mistake.
  3. Beware of any company that tries to charge you upfront or doesn’t explain your rights (like the fact that you have the right to submit disputes on your own for no charge).

The bottom line

It’s important to look over your three credit reports often. A monthly credit review is best, but you can start out with less frequent reviews, if needed, and ramp up the surveillance from there. If you find credit mistakes, take action immediately.

Remember, no one cares about your credit as much as you do. No one else will be as affected as you either, if mistakes damage your credit scores.

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