Inaccurate Credit Report Information

In 2010, credit reports are used by a variety of industries as decision-making tools. In the workplace, having substantial debt can prevent you from getting a job or even a promotion. The banking industry uses credit reports to set interest rates on loans and may deny you a bank account if your credit is poor. Insurance companies use them to set your rates to counter the potential that your debt may result in fraudulent claims.

Types

Credit reporting agencies use four broad areas to predict future credit performance; payment history, consumer indebtedness, acquisition of new credit and length of credit history. Your payment history is important because it shows your ability to repay debts in a timely fashion. Considered is the amount you are in arrears, the lateness of your payment and how recent the late payment was. In evaluating indebtedness, they review your revolving accounts to see how much of the available credit you used, and for loans, such as cars or mortgages, the amount of the remaining balance.

The length of your credit history is important because years of paying on debt reveals a credit pattern. Timely payments, a period of late payments and a resumption of timely payments, can reveal a temporary setback such as job loss. The final area is only a problem if you attempt to acquire a lot of new credit in a short period of time. Your credit score is derived from these four areas.

Inconsistent Reporting

Since your credit report is so important, you should know that no one is required to report your credit habits to reporting agencies. It is a voluntary act. This, according to a 2004 Federal Reserve study, is where the inaccuracies begin. Many companies don't report at all, and though you have an account and pay on time, it is not reported. Some creditors report only late payments, though it may be the only late payment in 10 years. Credit card companies don't always report an increase in your credit limit, so it may appear as though you reached you spending limit.

Credit Scores

Credit scores are a simple method potential creditors use to calculate your creditworthiness. An example of the impact is revealed in the Federal Reserve study which showed that in 2004, the average interest rate for a 30-year fixed rate mortgage was 5.75 percent if you had a FICO score of 720 or above. The interest rate rose to 9.29 percent, if your score was below 560.

Correcting Your Record

Though correcting inaccurate credit records is a sound practice, it can also result in additional inaccuracy. It is only corrected with the reporting agency with whom you disputed it. Be sure correct the inaccuracy with all three reporting agencies, Trans Union, Equifax and Experian. You can update your report at any time.

Unused Accounts

Unused accounts can lower your score, as it could appear you have debt you don't have. For example, if your mortgage is sold to another lender, and is not reported, it would appear that you have two loans outstanding. Always ensure a closed or transferred account is reported closed.