How to Correct Errors in Your Credit Report?

When a borrower defaults on a loan, each missed payment is reflected in their credit history. The more violations, the fewer chances of approval for other loans. But, even responsible and conscientious borrowers can have negative marks in their credit history. This happens as a result of errors on the part of lenders or credit bureaus, technical failures in data processing, and sometimes due to fraudulent activities. If the error is not corrected, it is fraught with problems in the future: lenders can refuse a loan or offer extremely expensive terms. In such cases, it is important to check your credit history on time and dispute any credit report mistakes.

When Errors Occur Due to the Fault of the Borrower?

Sometimes, borrowers may believe they have followed the loan repayment schedule, but the bank may see it differently. Therefore, it's essential to carefully check the exact monthly payment amount according to the repayment schedule. This amount isn't always rounded to a whole number, and sometimes a small balance, such as a few dollars, goes unnoticed. For reporting purposes, however, even a minor shortfall counts as a missed payment, which incurs penalties.

It's also important to pay attention to the payment dates. If a borrower makes a payment late in the evening on the due date, they may assume they met the deadline. However, most banks have an earlier cut-off for the business day, and internal policies determine when payments are considered on time. Any payment made after that time is automatically moved to the following day, which creates a delay reflected in the credit history.

When Does the Creditor Cause Errors?

Errors and inaccuracies in credit reports can occur for various reasons. There are known cases of fraud where criminals take out loans using someone else's identity or deceive trusting individuals. However, these issues often arise not from malicious intent but due to software glitches, technical delays, or human factors—such as a typo or inattention.

Most commonly, lenders make four types of errors that lead to inaccurate information in credit reports and can affect future decisions made by banks:

Lender's Error	Credit history mark	Impact on loan approval
The lender did not report the loan closure. Although the borrower fully repaid the debt, this information was not sent to the credit bureau.	A closed loan is displayed, but its status does not indicate full repayment.	There seems to be unpaid debt. This increases the debt load and lowers the chances of getting a new loan.
Information was duplicated. A technical error may cause the borrower's active loan to appear twice in their credit history.	In some cases, two loans with identical amounts, balances, or delinquencies may appear.	This situation looks like double the debt, which reduces the likelihood of loan approval.
Payment data failed to be reported on time. When a borrower repays the loan according to schedule, the creditor is required to record each payment and reflect the remaining balance in the borrower's credit history.	The loan balance is shown as higher than the actual amount, which can sometimes lead to late payments.	Creditors see the debt amount as higher than it is. Delinquency lowers the credit score, which may lead to a loan denial or a lower offered amount.
The creditor mistook the borrower for someone with the same name. Credit data from another borrower with the same name, birthdate, and region may be mistakenly added to the credit history.	A loan appeared that the borrower had not taken out.	Even if the loan was not taken out, if it appears in the credit history, the creditor will take this as true, which could result in denial or a lower offered amount.

How to Fix Credit Report Errors?

Here's a step-by-step plan to correct errors in your credit report: 

Check Your Credit Report for Errors

Regularly checking your credit report is important in managing your financial health. Take advantage of your right to free access to reports from the three major credit bureaus — Experian, Equifax, and TransUnion — through AnnualCreditReport.com. This review can help you identify inaccuracies or errors that might impact your credit score.

Each bureau maintains a separate report so that the data may vary slightly. Some creditors only report information to certain bureaus, which can lead to discrepancies. However, reviewing all three reports is essential: if one contains an error or negative information, it may also appear in the others.

Disputing errors is free and won't harm your credit score. You can request corrections for any information you believe is incorrect. Dispute as many items as necessary — your credit score may improve once verified and corrected.

Collect Materials to Dispute Errors

Preparing a comprehensive set of documents is essential to successfully disputing errors in your credit report. The more accurate and complete the information you gather, the faster the credit bureaus can process your request and correct the mistakes.

The supporting documents will depend on the type of error. If the issue pertains to financial transactions, it is helpful to include copies of credit card statements or loan agreements and bank statements that verify the accuracy of your information. If corrections to personal data, such as your name or marital status, are needed, copies of birth certificates, marriage certificates, divorce decrees, or death certificates may be required. In cases related to identity theft, include a police report or a complaint filed with the Federal Trade Commission to substantiate the fraud claim.

Don't forget to provide identification documents, such as a copy of your passport or driver's license, your Social Security number, date of birth, and your current and previous addresses for the last two years. Additionally, include a recent utility bill or bank statement to confirm your current address.

Disputing Errors in a Credit Report

Finding an error on a credit report necessitates prompt action to dispute it effectively. Here's a concise guide to navigating the process:

1. Initiate the Dispute: The fastest way to file a dispute is through the online portals provided by each credit bureau: Equifax, Experian, and TransUnion.
2. Clarify the Issue: In the dispute form, describe the error precisely. Whether it's a debt that does not belong to the individual or a payment incorrectly marked as late, detailing the exact discrepancy aids the bureau in verifying the mistake.
3. Indicate the Correction Needed: Specify whether the item should be corrected or removed. Once the error is confirmed, this direction helps the bureau resolve the issue.
4. Direct Dispute with Data Furnishers: Also, contacting the entity that provided the incorrect information—such as a bank or credit card issuer—can expedite the resolution. These furnishers are required to investigate and correct any erroneous information they have reported.
5. Keep Records: Although initial filings may not require documentation, compiling related documents like payment confirmations or account statements is crucial. These documents are useful if further evidence is requested during the investigation.

Review the Summary of Your Complaint

After filing a complaint about an error in your credit report, it is essential to review the results sent by the credit bureau. They must notify you in writing, typically within 30 days. This period can be extended to 45 days if additional documentation is provided.

The bureau will remove the erroneous entry and send an updated report if the dispute is valid. It is important to check this report for any mistakes. Additionally, one can request that the bureau notify anyone who accessed the credit report in the last six months about the changes made, as this corrected report may influence future financial transactions.

In cases where the bureau or creditor refuses to remove the erroneous entry, reaching out to the Consumer Financial Protection Bureau (CFPB) is an option. Providing a clear explanation of the dispute along with all supporting evidence will facilitate the CFPB's review of the complaint, and updates will be provided via email or on their website.

How Can Disputing a Credit Report Error Change Your Credit Score?

Disputing errors in a credit report is a common step to improve a credit score. However, it does not always yield the expected results. The outcomes of a dispute can vary, and here is how it may affect a score.

A successful dispute can lead to an improved credit rating. For example, if a report contains incorrect information about late payments that were paid, correcting that information can raise the score. Incorrect debt details, such as old debts that have been settled, can also lower a rating, and removing them may positively impact the score.

However, not all changes in a credit report will affect the rating. Correcting errors in the spelling of a name or address typically will not change the score unless that information was incorrectly linked to someone else's account. It is important to consider which errors to dispute and how they may affect the credit history.

In some cases, disputing can even lower the credit score. For instance, removing an account with a good payment history may shorten the credit history. A reduction in the length of the credit history or an increase in the credit utilization ratio can negatively impact the score.

Final Thoughts

If someone has consistently paid their loans on time and the bank unexpectedly denied a new loan application, it is advisable to check the credit history. There may be an error in the report that has harmed their reputation as a reliable borrower.

Regular monitoring and quick responses to discrepancies enhance credit status and safeguard against potential fraud, emphasizing the importance of vigilance in personal finance management.
Description: A detailed examination of payment schedules and amounts can reveal hidden errors. Even minor discrepancies can count against a borrower if not addressed quickly.