That’s because the credit-reporting agencies devote limited resources to addressing errors, and the investigations conducted by creditors and other data furnishers are often inadequate. Typically, the credit bureaus accept the word of furnishers in disputes, even when they haven’t produced any evidence to prove the information is correct.
Consumers also have a hard time getting access to the credit scores that lenders use to evaluate their creditworthiness. Of course, consumers can purchase their credit scores, but chances are they’ll end up with a score that’s different than what lenders rely on. Instead, credit-reporting agencies typically sell “educational” scores to consumers that are rarely used by lenders. Sometimes consumers sign up for what they expect is a free credit score, only to be pushed into enrolling in costly credit monitoring services. The scores offered through these services are usually different than the ones considered by lenders.
The difference between these scores can be significant. A recent analysis by the Consumer Financial Protection Bureau (PDF) found that the credit scores used by lenders compared to the scores typically sold by the credit bureaus would put consumers in a different credit-reporting category 19 percent to 24 percent of the time.
Fortunately, help may be on the way. Two U.S. senators—Brian Schatz (D-Hawaii) and Sherrod Brown (D-Ohio)—recently introduced the Stop Errors in Credit Use and Reporting (Secure) Act, a bill that would require credit bureaus to follow tighter rules for ensuring credit reports are accurate. It would also give consumers free access to reliable credit scores every year.
Credit bureaus are already required to follow “reasonable procedures to assure maximum possible accuracy” of the information on credit reports. But that vague requirement has given them a lot of leeway. The Secure Act requires the CFPB to more clearly define the “reasonable procedures” credit-reporting agencies must follow to maintain accurate reports.
The legislation also says consumers can get credit scores free every year when they request their annual credit reports. Under the bill, consumers must be given the same scores that are widely used by lenders to make credit decisions.
Maintaining an accurate credit report is absolutely critical in today’s economy. But too often, credit-report mistakes that are no fault of your own can cause real damage. Policymakers in Washington could make a real difference for consumers by adopting the reforms in the Secure Act.