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Here's How 30% of Americans Are Putting Their Credit at Risk

By Maurie Backman - Updated Jul 19, 2017 at 11:28AM

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If you don't check your credit report on a regular basis, you won't spot errors that could have serious financial consequences.

Your credit score can impact your finances in more ways than one. Without decent credit, you could have trouble getting a mortgage, an auto loan, or even a job. But in a recent WalletHub study, 37% of Americans admitted that they haven't checked their credit reports in at least a year. Worse yet, 16% said they've never checked their credit reports at all.

This lack of credit awareness is especially troublesome given the number of inaccurate credit reports out there. It's estimated that a good 20% of credit reports contain errors, and unfortunately, sometimes all it takes is a single mistake to cause an otherwise healthy credit score to plunge. That's why it's important to check your credit report at least once a year -- and correct those errors before they really cause damage.

Worried man reviewing documents

IMAGE SOURCE: GETTY IMAGES.

Common credit report errors

Though not all credit report mistakes are major ones, sometimes even a seemingly minor error can cause serious trouble. Given that many Americans have the same name, identity swaps are fairly common among credit reports. But if your name gets mixed up with someone else's, and that person's past due accounts start showing up on your credit report, it's your score that'll end up going down.

Then there are errors that stem from incorrect reporting. A bank or lender may report inaccurate information about you to the credit bureaus. Say you paid off a loan but your lender reports it as outstanding. These things can happen, and when they do, it's pretty easy to prove you're in the right -- provided you're aware of the misinformation.

Furthermore, it sometimes happens that the same loan is listed twice on your credit report. Duplicate reporting can impact your credit utilization ratio, which is the amount of credit you're currently using relative to your total line of credit. Most lenders want to see a credit utilization ratio of 30% or less, which means that if your total available credit is $30,000, you shouldn't have more than $10,000 of debt outstanding. Now let's say you're carrying a $6,000 balance on a given credit card and have no other liabilities. If that same debt is listed twice, it'll bump your credit utilization ratio over that 30% threshold, thus making you a less attractive loan candidate the next time you attempt to borrow money.

Keep in mind that because outstanding debts are frequently sold and resold to collections agencies, duplicate reporting happens more often than you'd think. That's why you need to be vigilant in monitoring your credit report and take action when errors pop up.

Disputing a credit report error

You should address a credit report error as soon as you notice it. The longer it sits, the more trouble you'll have borrowing money in the near term. You can dispute an error in one of two ways: directly with the credit bureau or with the information provider. The former is usually the most efficient and beneficial, but the latter sometimes becomes necessary as well.

To dispute an error with a credit bureau, simply gather documentation in support of your claim and submit it to the bureau with a detailed explanation of its mistake. Be sure to retain copies of all communication for your files. As per the Fair Credit Reporting Act, credit bureaus must review and respond to every dispute they receive within 30 days, or otherwise remove any negative listing under dispute.

If a credit bureau responds to your dispute and insists that its information is correct, you may need to go straight to the source by contacting the information provider. Once again, keep a record of your dealings with your lender in case the issue can't be resolved to your satisfaction.

No matter what steps you take to resolve a credit report error, don't make the mistake of sitting back and doing nothing. The Federal Trade Commission reports that about 20% of consumers who informed one of the big three credit bureaus about errors in their credit reports saw their scores go up as a result by enough to put them in a better credit tier, which qualifies people for better loan rates, among other benefits.. Of course, in order to spot a mistake, you need to take the time to read through your credit report, so don't neglect the issue like 37% of Americans typically do. By law, you're entitled to a free copy of your credit report every year from all three major credit bureaus: Equifax, Experian, and TransUnion. Request yours online and examine them thoroughly. Otherwise, you could be setting yourself up for unnecessary financial trouble.

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