CFPB Taking a Closer Look at Credit Reporting Errors

Credit reporting errors getting closer look

The CFPB is digging into how credit report errors are addressed by the credit bureaus and your creditors.

The nation’s new consumer watchdog is aiming to make it easier for prospective homebuyers to address and eliminate errors on their credit reports.

In a report released this week, the Consumer Financial Protection Bureau noted that the country’s three major credit reporting bureaus — Equifax, Experian and TransUnion — have room for improvement when it comes to healping consumers clear up errors on their credit profiles. About 1 in 4 credit reports have errors serious enough to derail major expenditures, according to consumer group U.S. PIRG.

“Today’s study is another step toward bringing more clarity to the confusing world of credit reports,” CFPB Director Richard Cordray said. “It will help educate regulators and consumers about how this important industry works. If consumers know how these companies handle their credit histories, they can make better decisions on how to handle their financial lives.”

Credit and Collections

The report found that nearly 40 percent of credit report disputes are related to collections. Part of the problem is that debt collection can leave a winding trail. Debt often winds up either with collection agencies or debt buyers, who buy and sell debt many times over. Both scenarios introduce the chance for information and documentation to go missing or for mistakes to enter the picture.

Consumers often receive no notification that their debt has been sold or sent to a collection agency.

About 15 percent of consumer disputes are resolved in-house at the credit bureaus, according to the report. The agencies pass on the remaining 85 percent to the entities that furnish the credit and payment information, such as credit card companies, banks, collection agencies and others. These creditors are required to investigate and report back to the credit bureaus.

Some consumers and consumer groups have railed against the reliance on these “furnishers” to resolve disputes.

Check Your Report

The report also found that consumers aren’t paying enough attention to their credit reports. Overall, the credit bureaus maintain files on more than 200 million consumers and receive information on more than 1.3 billion credit accounts each month. Consumers disputed about 35 million items on their files in 2011.

Despite that, only about 1 in 5 consumers gets a copy of their credit report.

This is an especially critical step for prospective homebuyers and homeowners considering a VA refinance. You can obtain your credit report for free from Annual Credit Report.com. Scour it for errors or anything that looks questionable. Right now VA lenders are generally looking for a at least a 620 credit score, and big-time errors on your report could put a home loan out of reach.

For now, the CFPB will continue to accept consumer complaints about credit reporting and provide individual assistance at the federal level. The agency will also be examining how those creditors, or furnishers, report information to the credit bureaus. You can submit a complaint or learn more about the CFPB online or at 855-411-2372.

Photo courtesy of Tax Credits