You’ve just been hit with a 30 percent penalty interest rate on your MasterCard because, the creditor says, you were late paying some other bill--to Visa. Priceless! But wait a minute--you don’t have a Visa card, and you haven’t missed a loan payment since the Nixon administration. The problem may be a mistake in your credit history.

Consumers find some 13 million inaccuracies on their credit reports each year, everything from erroneous late payments and other people’s debt information to nonpayment of a bill dating to before they were born. Borrowers can dispute such errors, but most don’t know the best way to do it. Complicating matters, the Fair and Accurate Credit Transactions Act of 2003 imposed new requirements that are supposed to resolve problems with the dispute process. But federal agencies haven’t finished writing all the regulations that creditors and other entities that furnish information to credit bureaus need to carry out the law.

If you find your credit report marred by erroneous information, here’s how to right those wrongs.

1

Don’t wait for errors to find you
Get your credit reports, and scrutinize them for errors right now. If you’re too busy, do it at least 30 to 90 days before you plan to apply for credit or insurance; sign up for cell-phone, gas, electric, or other utility services; rent an apartment; or apply for a new job. All of those actions could prompt a check of your credit report or credit score, and inaccurate credit information could significantly raise the cost of each product or service.

More than 40 percent of the consumers surveyed by the U.S. Government Accountability Office in 2004 hadn’t checked their credit reports for errors. Federal law now entitles you to one free report every year from each of the three national credit bureaus: Equifax, Experian, and TransUnion. Get all three at www.annualcreditreport.com, and steer clear of other Web sites that offer “free” reports only if you subscribe to their expensive credit-monitoring services.

2

Forget complete accuracy
Yes, you have the right to dispute inaccuracies, but federal law doesn’t define that critical word. So credit bureaus determine what is inaccurate to their own advantage.

For example, out-of-date information is inaccurate, right? Wrong. If you recently paid down your credit-card balance to zero but the credit bureau shows a three-month-old balance of $8,000, that’s not a disputable error, says Donald Girard, a spokesman for Experian, as long as the outdated balance was correct as of the reporting date. Missing information is also wrong, isn’t it? No. Credit bureaus don’t have to report your credit limit if the creditor doesn’t tell them. And creditors often don’t tell because they want to prevent competitors from identifying and stealing their high-limit customers. Missing credit limits can also hurt your credit score, but the credit bureaus won’t accept the information if you try to fill in the blanks.

3

File disputes with credit bureaus and creditors
You can dispute erroneous personal information, such as your name, address, or Social Security number; information that’s not about you; and other errors in reported information aside from those outlined in Forget complete accuracy.

Dispute an error directly with each credit bureau because they’re under no obligation to report corrections to each other. Creditors and other information furnishers, however, are required to send corrections to all credit bureaus they regularly report to. Credit-bureau Web sites encourage visitors to dispute errors online, but that’s not the best approach. Instead, dispute the information in writing and send the letter by U.S. mail with a return-receipt requested. That way, you have proof that the credit bureau received it.

Here’s why an old-fashioned letter is better. Consumers must send copies (not originals) of all documents that support their claim. Then the credit bureaus are to pass along “all relevant information” to creditors for them to investigate. But they don’t always follow that rule. Instead of sending all the information, whether the dispute was filed online or on paper, credit bureaus often truncate your detailed argument down to clipped, generic codes that consumer groups have criticized as “vague and broad.” To get around credit bureaus shirking their duty, also send a copy of your credit-bureau dispute--along with all documentation--directly to the creditor or information furnisher.

The credit bureaus normally have 30 days to investigate and correct any errors they find, and it appears that they meet those timelines. However, consumer groups say that creditors don’t do a meaningful investigation. Rather, they merely check the claimed error against the flawed records that originally generated the mistake. Some creditors have confirmed this, regulators say. Creditors may also simply delete disputed information to avoid the cost and trouble of verifying its accuracy.

4

Check for errors that reappear
Almost 70 percent of consumers who filed disputes said the erroneous information was removed, while 23 percent said it wasn’t and 7 percent were unsure, according to the 2004 GAO survey. However, even when false information was removed, it subsequently reappeared in 13 percent of “successfully” resolved disputes. So check your credit report again, two to four months after a correction, to make sure that the error hasn’t reappeared.

As previously noted, creditors are required to report corrections to all credit bureaus that they regularly report to, but this sometimes gets overlooked. If that happens, you must file a new dispute with the creditor. But this time, include a copy of the documented correction that you already won so you don’t have to completely reargue your case.

To motivate the creditor to comply with the law and not make the same mistake again, you should also file a complaint about the creditor with the Federal Trade Commission, at www.ftc.gov (click on File a Complaint on the toolbar).

5

Repairing the damage
If a dispute hasn’t been resolved to your satisfaction, you have the right to add to your credit report a 100-word statement about the matter. Though 100 words rarely allow for sufficient detail or documentation, the statement tells creditors that there’s another side to the story. But the personal statement counts for zip in computerized credit-scoring systems. Whether you add it or not, plan to personally deal with unresolved credit-report errors with your loan officer, landlord, insurance agent, utility, or prospective employer.

If a lender, insurer, or other party based its prices or other decisions on your erroneous credit report within the last six months, the credit bureau is required to send corrected copies to those companies--if you request it. Finally, ask any insurer who used your credit report to rerate your policy premium taking into account the correct information. And ask any lender who used the erroneous information to recalculate your interest rate or reconsider a rejected loan application. Also ask utilities or landlords to return any extra security deposits you had to pay because of the error. If, in the previous two years, the error caused adverse consequences with a prospective employer, ask the credit bureau to send the corrected report to the employer.

If errors were the result of identity theft, you have the right to block the credit bureaus from reporting specific accounts that were opened by the thief, accounts that were once yours but were taken over and trashed by the crook, and other erroneous negative information. You can even block credit-application inquiries piled up by the thief--and you should, because multiple inquiries can reduce your credit score by creating the impression that you have been applying for an unusually large amount of credit. To accomplish this, you must fill out, notarize, and file an ID theft report with the credit bureaus. Find the necessary form at www.ftc.gov/bcp/edu/microsites/idtheft.