Last month’s column explained how your credit report and credit score can affect your borrowing, whether on a business or consumer loan. The bottom line to keeping both your business and personal credit strong is pretty straightforward: Don’t borrow more than you can afford, and pay all your bills on time.

But what happens when your credit report has a mistake – especially one that makes you look less creditworthy than you are?

Credit report mistakes do happen, although there’s some disagreement about how frequent they are. The big credit bureaus – TransUnion for consumers, Equifax and Experian for both consumers and businesses, and Dun & Bradstreet for businesses only – insist their error rate is low, with just one half of 1 percent of customers getting dinged for a higher interest rate because of an error. Yet even that small percentage could affect as many as 1 million people, as a USA Today editorial recently noted. And errors have led to thousands of lawsuits in the last five years and tens of thousands of complaints each year to the Federal Trade Commission.

 

Getting the bad news

So how do you even learn of a mistake in your report?

The obvious way is to check your report periodically – more on that in a moment. But the sad truth is, you probably won’t learn of it otherwise unless and until something bad happens – you get a higher interest rate than you planned on for an equipment loan, or you get a call from your credit card company telling you they’re dropping your credit limit because of an alleged delinquency.

If you experience a denial or reduction in credit in this way, it will be because of a report from one of the credit bureaus to the creditor. Ask the creditor in question which bureau supplied the damaging information. You are then entitled to a free copy of your report from that bureau.

In addition, the federal Fair Credit Reporting Act requires the credit bureaus to give you a free copy of your credit report once a year. Log on to www.annualcreditreport.com, call 877/322-8228, or download an Annual Credit Report Request Form from www.annualcreditreport.com/cra/order. Fill out the form and mail it to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. Business reports aren’t covered by the FCRA.

 

Making things right

Whether you get the report in response to a bad event, or simply from your annual request, look it over carefully. If you see an error, act right way.

One type of error results from outright identity theft – someone has opened a new account in your name and, in all likelihood, run up a mass of bills on it. Overcoming a case of identity theft requires immediate action and will probably involve filing a report with the appropriate law enforcement agency. (See the “Money Manager” column from the October 2011 issue for more information.)

The other, though, is probably from some sort of error made by one of your actual creditors – a bill mistakenly reported paid late, for example, or not paid at all, when in fact it was.

To correct it, immediately report it in writing to the credit bureau, along with copies of verifying documentation. Credit reporting companies have 30 days to investigate, and must forward data you provide to the original creditors who reported the information that led to the downgrade.

You might find that the lender who received the negative report will actually help you through the process of getting connected to the credit bureau it came from. That’s what happened to a business owner I know whose business credit card suddenly dropped his line of credit due to a negative report, even though he’d always paid that lender on time and without dispute. A customer service representative from the credit card helpfully guided him through the process of filing the dispute with the credit bureau.

But remember, the wrong information in the report originally came from a creditor, too – and you’ll need to deal directly with that source, as well.

If that creditor’s own records show you’re clean, and that there was some mistake in their reporting to the credit bureau, get a written statement to that effect. On the other hand, if the creditor’s records also are mistaken, you’ll need to submit a dispute in writing.

 

Following up

Once the investigation is finished, the credit reporting company must give you the results in writing, along with a new, free copy of your report if the dispute has led to a change.

“If you ask, the credit reporting company must send notices of any corrections to anyone who received your report in the past six months,” says the FTC in a helpful, step-by-step guide to fixing credit bureau errors. “You can have a corrected copy of your report sent to anyone who received a copy during the past two years for employment purposes.” (You can see the rest of the FTC’s advice here: www.ftc.gov/bcp/edu/pubs/consumer/credit/cre21.shtm.)

Sometimes the investigation still won’t end the dispute. In those cases, have a statement of the dispute included in your credit file and in future reports. Also, the credit bureau will send a statement to anyone whom it has sent your credit report recently – but you’ll probably have to pay a fee for that.

No one wants to have to deal with the headache of a credit report black mark – especially if it’s a mistake. But the reality is that they happen. So if you have to fix it, the most important thing is, don’t dither.

Make the call, write the complaint, get the information to back you up, and get moving. That will be the quickest way back to a clean report that gives you all the credit you’re due. C