Late yesterday I recorded an interview with Terry Gross on Fresh Air. She is one of my favorite interviewers (smart, and what a voice!). She had called me to ask about credit reporting agencies. What made the interview stand out was her introduction. She told a story about her husband's trip through Credit Reporting Hell.
Her husband's experience is no real surprise. After all, a 2004 PIRG study found that 87% of credit reports had errors, and one in four had an error big enough to change a credit score. Consumer Federation of America reported that 31% of credit reports had an error that would change a credit score by 50 points or more. If a serious error hasn't happened to you, then it has happened to someone you know. Because Terry Gross's husband could hire a lawyer, the problem was eventually fixed, but not until he had spent a lot of time and a lot of worry.
Starting the interview with a personal story about the impact of an error raised an important question: Why should consumers be saddled with the responsibility to monitor the errors of credit reporting agencies? It is MY information about ME. Someone else is collecting it, creating errors, and passing those errors along to other people. Those errors can cost me a job, denial of homeowners' insurance, a higher premium on my car loan, a higher price to buy a car even for cash, and, of course, a higher price for a mortgage, a credit card, a car loan, or any other loan. And the system says, in effect, it is my problem to monitor the information. It isn't enough that I don't impair my own credit. It is also my problem to find errors that the company has put in, to document the correct those errors, to fight with the company if they won't believe me, to check to make sure the errors were removed and to make sure those errors never reappear. I can even pay for insurance to help me if a credit reporting company makes a mistake.
Since I already have a full-time job and a life outside that job, I resent this capture of my time. I also believe that a law that puts the burden on consumers to correct errors and puts no penalty on the credit reporting companies for passing along bad information is designed to encourage a high error rate. There are simply not enough incentives for the credit issuers to spend their money to reduce errors in the credit reporting system or to make correction cheap and quick.
In some states, it is possible to lock a credit report to stop all activity. That helps prevent future errors, but it still puts the burden on the customer.
A lot of people end up paying for bad credit reports. Many never know it because they don't know that the price quoted for insurance or a car was based on their credit score. They will just be poorer than they would have been if the credit reporting companies had more incentive to get it right.