Personal credit reports and credit scores determine how much we pay for credit or whether we can get it at all. To ensure you have access to credit, you should take steps to make sure the information is accurate and to correct any errors or omissions.
If you are a business owner, your personal credit report is a big factor in determining your company’s access to capital. When a business owner requests business credit from a lender, a personal guarantee is almost always required. Lenders will want to review the credit reports of each shareholder with more than 20 percent ownership. According to experts, as many as 70 percent of credit reports contain errors or incorrect information. So that there are no surprises, all personal guarantors should review their credit reports at least annually.
Obtaining Your Credit Report
Some lenders and credit card companies report your credit to all three, while other creditors may only report to one. As a result, your credit scores among the three may differ, even if all the information is accurate. For major purchases, such as a house, lenders often average all three scores into a blended score to make decisions.
Look at these reports closely for accuracy. Make sure all the credit being reported is really yours, and when you find errors, begin the process of correcting them. If you order your reports online, you can also dispute them online and the process is much easier.
Correcting Credit Report Errors
When you find an error, first contact the credit reporting agency. This has become much easier with online error reporting and correspondence. The agency must remove the entry from your report for up to 45 days while it attempts to verify or correct the accuracy of the information. Once the 45 days has expired, if the credit reporting agency cannot verify it, the derogatory entry is removed permanently.
If the credit reporting agency verifies the creditor’s entry, contact the creditor to attempt resolution. Dig up proof of payments and other material to prove that you weren’t late or that the debt was paid off.
Keep accurate records of all correspondence, including a log of times and dates of phone calls and letters during the creditor’s collection process. This may prove useful later if the incorrect credit report entry is not resolved. If the dispute is serious, send your correspondence to the creditor by certified mail, receipt requested. An example of a serious issue might involve identity theft or fraud committed against you by someone who has illegally obtained credit in your name.
The process can be easy if the creditor doesn’t respond to the credit reporting agency in the time required, or difficult if there are multiple errors to resolve or issues involving identity theft. Because the process is time-consuming, it is wise to watch your credit reports throughout the year and correct anything that comes up as soon as you become aware of it.
Until there is a better system for creditors to rate the creditworthiness of individuals while minimizing errors, it will be up to consumers to monitor and dispute information that is not accurate. Consumers who do will be rewarded with higher credit scores, more credit available, and lower borrowing costs.
Sam Thacker is a partner in Austin, Texas–based Business Finance Solutions.