A recent Consumer Financial Protection Bureau (CFPB) study on the three major credit reporting agencies -- Transunion, Equifax, and Experian -- took a look at their infrastructure and ways of disseminating your important credit information. In essence, the study's main focus was about creating a more transparent culture when it came to you and your credit history.
So, what did they find that was both interesting and shocking?
- Only about one in five Americans checks their credit reports on a yearly basis. This has a direct effect on the next finding regarding discrepancies in reporting.
- Errors have been known to be found in these credit reports. The extent is currently unknown but, without checking your yearly credit reports, you can compound these problematic mistakes.
- Finally, almost 57 percent of the data from the 3 major credit reporting agencies comes from only 10 major financial players in the marketplace today.
So, what does it all mean? Read on to find out!
Have You Checked Your Credit Report Recently?
The CFPB study found an alarming statistic amongst those seeking their yearly credit reports: less than one in five Americans actually checks their reports each year. According to CFPB Director Richard Cordray, this is an important way to identify potential errors in your report. You are entitled under federal law to a report from each of the three major credit reporting agencies every year.
In essence, these credit reports list your:
- Active (and inactive) credit accounts dating back 7 years. If you've gone through bankruptcy in the interim, the reports will push to 10 years.
- Payment history on each account during those years.
- Public records which will cover items such as liens or judgments, potential collection debts, and 3rd party requests of those seeking to view your credit report.
So, lenders, potential employers, landlords, insurance corporations, and more, can use your credit reports in order to ascertain whether or not you may qualify for a potential line of credit. Thus, it's very important to understand your credit score and any discrepancies or mistakes therein.
So, How Accurate Is Your Credit Report?
Even the CFPB doesn't quite have an answer for consumers when it comes to accuracy within the credit reporting agencies. According to Cordray, there are definitely errors associated with the process, but to what extent is not currently unknown. For consumers, the upcoming Federal Trade Commission (FTC) ten-year study to be released on errors within credit reports should shed some light on the subject matter.
Until then, it's important for you to understand that these errors within your credit report can result in unexpected obstacles to hurdle, such as issues when attempting to borrow money from a lender or even causing you to pay a higher interest rate than is required.
To know and understand your credit report is to be up-to-date and knowledgeable on your score and find potential errors before they end up hurting you. At the most inopportune of times, these mistakes won't be a problem thanks, in part, to checking your yearly credit report.
From Where Do Your Credit Statistics Actually Originate?
According to Credit.com, the 10 largest financial institutions account for more than half -- around 57 percent, to be exact -- of the information found in your Experian, Transunion, and Equifax credit reports. In actuality, about 75 percent of this financial information comes from the top 50 institutions.
So, what does this mean for you? Well, these major players glean information from a variety of products, such as:
- Credit cards
- Car loans
- Home mortgages
- Student loans
- Personal loans, and more
And this is where your information comes from, with credit cards making up the majority of your credit report. The CFPB study found that 58 percent of all accounts happen to be bank credit cards or store credit cards.
The Bottom Line
CFPB Director Richard Cordray believes, and rightfully so, that these credit reporting agencies are critical in our current economy. In many instances -- due to knowing your credit history, understanding your overall score, and catching potential errors in the process -- it's possible to get a line of credit for a home, car, and other such important purchase without any of the additional hassle. Without credit reporting, you might not be able to get credit when you need it most!
The author who contributed this article is Chase Sagum, Financial and Business blogger. Check out more of his content at www.lexingtonlaw.com.