One quarter of credit reports contain errors serious enough to disqualify consumers from buying a home or even getting a job, according to a recent study by one public interest advocacy organization. But the trade group representing the credit reporting industry questions the validity of the results.
The U.S. Public Interest Research Group (PIRG) announced that it recently released a study consisting of 200 collected surveys from adults in 30 states who reviewed their credit reports for accuracy. The group found that 25% of the credit reports "contained errors serious enough to result in the denial of credit," and that 79% contained mistakes of some kind.
"The big credit bureaus and big business tolerate big mistakes in credit reports," said Ed Mierzwinski, a PIRG director, in the announcement. "But those mistakes ruin the financial reputations of hardworking Americans."
The "outrageous," inaccurate credit reports are capable of damaging one quarter of all consumers' "ability to buy a home, rent an apartment, obtain credit, open a bank account, or even get a job," he added.
The "Big 3" credit bureaus -- TransUnion, Equifax and Experian -- collect and compile information on nearly every American adult's creditworthiness from banks, creditors, and public records such as tax liens and bankruptcy filings. The information results in a credit report, from which a credit score is calculated and serves as a base lenders commonly use to determine the likelihood that a consumer will pay obligations.
According to creditrescoring.com, 85% of all lending decisions factor in a credit score to determine what interest rate a consumer will be charged. The site's author David McGovern claims he has rescored over 1000 credit files and, in a study, said that about 70% of credit files contain errors -- 29% serious enough to derail a credit decision.
PIRG reported that along with other consumer organizations, it has issued numerous reports over the last decade showing that sloppy credit bureau practices are at fault for errors in consumer credit reports.
But, a credit-reporting industry representative who labeled the recent PIRG study as "a little more than an opinion piece" suggested things may be the other way around.
"You need to look no further than the study that they released if you want to define sloppy," said Norm Magnuson, a vice president for the Consumer Data Industry Association. "It's ironic that its an attempt to take the industry test for accuracy and they put out a study that's inaccurate from the get-go."
Magnuson said the survey's 154 population sample was not significant enough for PIRG to be able to draw any valid conclusions, "not to mention the fact that they're all employees or members of PIRG adds a biased factor."
Another fallacy in the study, he said, was that PIRG "unilaterally and arbitrarily decided to determine what a serious error is," and equalized them. For example, a consumer's credit report that has an inaccurate 30-day late payment from a month ago is viewed significantly different than if there is a 30-day late payment five years ago, but "they're calling them all serious errors for a consumer to be denied...and that's not true," he added.
Thirdly, if in fact 25% of all credit reports were in serious error, delinquencies on credit would be significantly higher than the current 4% to 6% annually, the vice president said.
The study reportedly found that 54% of the credit reports contained personal demographic identifying information that was misspelled, long-outdated, belonged to a stranger, or was otherwise incorrect; 30% contained credit accounts that had been closed by the consumer but incorrectly remained listed as open.
"In the last five years the FTC has fined the Big Three credit bureaus millions of dollars for not helping consumers clean up inaccurate reports, yet recently allowed the credit bureaus to roll out the new right to a free credit report at a snail's pace," said PIRGs Mierzwinski. "It's shocking that most of the country needs to wait until next year to get the important rights Congress promised them last year."
Although Congress passed and act at the end of 2003, PIRG said the Federal Trade Commission finalized in June a rule to implement the new consumer right to a free credit report, which will roll out over a nine-month period, beginning on the West Coast in December and finishing on the East Coast in September 2005.
Consumers were advised by PIRG to examine all three credit reports at least once each year before applying for credit. Until the Federal Trade Commission fully implements the new law, residents in Colorado, Georgia, Maryland, Maine, Massachusetts, New Jersey and Vermont, can already obtain a free credit report. Consumers that were recently denied credit and believe themselves to be victims of identity theft or fraud may also receive a free copy of their report.