All About Credit: Overview

Did you know that nearly 80% of consumer credit reports have errors? That is nearly 8 our of 10 people!

 

Given the importance of credit scores, why so many errors?

 

Three reasons:

  • Size

  • Speed; and

  • Economic Incentives of the System.
     

 

Equifax, Experian, and TransUnion update over 1 billion pieces of data each month, requiring a rapid processing system. Unfortunately, with so much data and speed, common errors are inevitable. Common errors include:

  • loans that have been repaid but appear as unpaid;

  • debts incorrectly reported as being in collection;

  • incorrect personal information and addresses;

  • and "mixed" files, in which information from a different person appears in your credit report.
     

 

Some of the errors are pandemic-related The federal government’s relief program allowed a pause in the repayment of certain loans — including federally backed mortgages and federal student loans. Borrowers’ credit reports are supposed to show the loans as current, even though payments are on deferment, to avoid damaging their credit while they are in financial hardships. This has proven through many consumer complaints not to be the case.
 

 

Given these problems, it is not surprising that credit reports are a major source of consumer complaints. In 2020, consumers filed more than 280,000 complaints about credit reporting issues — more than half of all complaints received last year by the Consumer Financial Protection Agency.
 

 

Credit report errors have long been a problem for consumers. Unfortunately, the credit reporting system wasn’t built for the benefit of you and I, it was built for the lenders that use it, and because of the complexity of the credit reporting system, there is nothing about it that makes it easy, friendly, or helpful for consumers. Lenders benefit from the credit reporting system and the inaccuracy of the information being reported, by offering you higher interest rates, less favorable terms, or even denying you credit if you look too risky.