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Inaccurate Credit Information Can Cost You Dearly

A study released in December 2002 by the Consumer Federation of America (CFA) and the National Credit Reporting Association (NCRA) entitled Credit Score Accuracy and Implications for Consumers indicates that millions of Americans could pay more for – or be denied – credit, insurance or utilities based on inaccurate credit scores.

What Is A Credit Score?

A credit score is a single number, based on an analysis of information contained in an individual’s credit report that provides an indication of how likely they are to repay his or her debts. A score is derived from several types of information including payment history; amount of debt owed and types of credit used. It has become common place to base consumer access to credit, housing, insurance, basic utility services and even employment using these scores and/or credit reports.

The growing use of credit scores has increased the speed that many credit decisions are made. Almost all credit granted using online applications and instant credit offers are based on credit scoring. However, in consumer lending, inaccurate scores can result in unfair treatment of borrowers who are denied or charged high prices for credit.

Errors of Omission and Commission

The analysis of 51 representative files for consistencies and inconsistencies revealed reasons for these differences in scores. Common errors of omission were the failure to report a negative event – for example, a delinquency or charge off – or a positive event – for example, payments on an account. Seventy eight percent of files were missing a revolving account in good standing, while 33 percent of files were missing a mortgage account that had never been late.

More serious errors of commission appeared in a significant portion of files. In 43 percent of the files, reports on the same accounts conflicted in regard to how often consumers had been late by 30 days. In 29 percent of the files, there was conflicting information about how many times the consumer had been 60 days late. And in 24 percent of the files, conflicts existed about 90-day delinquencies. Reported delinquencies have a large effect on credit scores.

Useful and Timely Information Missing

The study found that consumers who are informed about the reasons for their credit score are not given useful and timely information. Nearly seventy percent of the 1,704 credit reports examined indicate that the primary factors contributing to the score were "serious delinquency, derogatory public record, or collection filed" or some combination of these factors. Consumers were not provided with information about which specific accounts were responsible for the low scores. And in many cases, it is not even clear whether a delinquency, public record or collection was responsible for the score.

The research found that certain information in credit reports has the potential to cause breaches in consumer medical privacy. Many credit report entries regarding medical collections contained enough information to infer medical details about consumers, such as the type of treatment they had received. The ability to discern from a credit report that a consumer may have received treatment from a neonatal clinic, fertility clinic, mental health provider or AIDS clinic could potentially facilitate discriminatory treatment.

Article continued at http://www.pacreditunions.com/commoncents2003/inaccurateinfo.htm

 

 

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