It’s important that you take steps to protect yourself because the credit bureaus’ basic modus operandi is inherently flawed. It is designed to serve their ends, with no concern for accuracy or integrity. As a result, consumer credit reports are fraught with error. In 2002, the Consumer Federation of America (CFA) and the National Credit Reporting Association (NCRA) conducted a study of 502,623 consumer credit reports, doing an extensive review of 1,700 of them. In examining 3-in-1 reports (merged reports containing data from each of the Big Three), researchers found that on 29 percent of them, the FICO scores for each individual bureau report ranged by at least 50 points, and on 4 percent the scores ranged by at least 100 points. The average range of the three scores was 41 points, and the median range was 35 points.
Upon conducting a more detailed examination of 51 files, researchers uncovered various reasons for the differences in scores: “Common errors of omission were the failure to report a negative event-for example, a delinquency or charge-off-or a positive event-for example, payments on an account. Seventy-eight percent of files were missing a revolving [credit card] account in good standing, while one-third (33 percent) of files were missing a mortgage account that had never been late.” The report further found that “more serious errors of commission appeared in a significant portion of files. In 43 percent of the files, reports on the same accounts conflicted in regard to how often consumers had been late by 30 days. In 29 percent of the files, there was conflicting information about how many times the consumer had been 60 days late. And in 24 percent of the files, conflicts existed about 90-day delinquencies. Reported delinquencies have a large effect on credit scores.”
Since FICO credit scores are the primary determining factor lenders use to assess your creditworthiness, the flawed credit reporting system at the root of such discrepancies may well result in your paying a higher interest rate or receiving a flat-out denial.