About 5 percent of consumers in a new study had errors in their credit reports that could lead to them paying higher rates for loans.

The study, from the Federal Trade Commission, examined credit reports for 1,001 consumers obtained from the three major credit bureaus.

“These are eye-opening numbers for American consumers,” said Howard Shelanski, Director of the agency’s Bureau of Economics, in a prepared statement about the study, which was mandated by Congress.

About a quarter of consumers in the study had at least one potentially significant error in one of their three credit reports, the report found. But correcting the errors didn’t always result in a meaningful increase in their credit scores.

Over all, 26 percent of the participating consumers identified at least one “potentially material’ error in at least one of their three reports. The report defined a “potentially material error” as an alleged inaccuracy in information that is commonly used to generate credit scores. That includes things like the number of accounts sent to a collection agency, the number of credit inquiries, and the number of late or missed payments.

Twenty-one percent of the study participants, or 206 people, went through a standard process to challenge the errors, and received a change to their credit report after the dispute.

Just 129 people, or 13 percent of the participants, experienced a change in their credit score as a result of the change in the information in their credit report, the analysis found, but the maximum change in score for over half of the consumers was less than 20 points.

Just 5 percent (52 people) saw their credit scores increase enough to move them into a lower-risk credit tier, which would make them eligible for a lower interest rate on, for instance, a car loan.

However, the report noted that the major credit bureaus are estimated to have files on at least 200 million consumers. So that translates into about 10 million people who could unnecessarily be paying higher rates on loans.

Credit reports are prepared by the three major credit bureaus (Experian, Equifax and Transunion) based on data reported by lenders like banks and credit card companies; credit scores are calculated using different models, based on information in the credit reports. The study used FICO scores, the three-digit scores most commonly used by lenders.

Over all, the report said, while a “notable” number of consumers may have inaccuracies on their credit reports, the effect of the errors on credit scores is “generally modest,” and there’s often no change in the credit score if they’re corrected. “For a few consumers, however, the impact is large,” the report concluded.

John Ulzheimer, a credit-industry expert, says the study suggests errors are far more frequent than an industry-backed study in 2011, which found that fewer than 1 percent of reports have material errors. But the F.T.C.’s findings also are far less dramatic than estimates from groups like the U.S. Public Interest Research Group, he said, which found in a 2004 report that more than three-fourths of credit reports have errors of some sort.

The findings underscore the importance of checking your credit reports. Federal law allows you to check them for free at least once a year, at annualcreditreport.com, but few consumers take advantage of the free copies.

Have you tried to correct an error in your credit report? What was the result?

Article source: http://bucks.blogs.nytimes.com/2013/02/11/millions-may-be-affected-by-credit-report-errors/?partner=rss&emc=rss