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Hearing highlights importance of accurate credit reports

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In today's society, a credit report helps West Virginians and other Americans secure loans for new homes, cars and a variety of other purchases.

But some people may not realize the importance of having an accurate credit report.

Sen. Jay Rockefeller, D-W.Va., stressed the importance of correct credit reports during a May 7 hearing of the Senate Committee on Commerce, Science and Transportation. As chairman of that committee, Rockefeller urged Americans to take a look at their credit reports to ensure accuracy and better learn the state of their overall financial pictures.

"The credit reporting system plays a crucial role for Americans," Rockefeller said in his statement to the committee. "Credit reports are the foundation for some of the most important decisions that consumers face. Businesses use credit reports to decide whether consumers can get a car loan or a mortgage for their house, or even a credit card. Credit reports are used to determine whether a consumer can rent an apartment or even get a job. Because credit reports have such influence on all aspects of consumers' lives, they must be accurate. And, if they do contain errors, people must be able to correct those mistakes."

Shelene Shrewsbury, a credit counselor with Consumer Credit Counseling Services of the Mid-Ohio Valley, echoed many of Rockefeller's points, noting the credit report is how lenders judge consumers.

"Credit reports are the story of your credit life," Shrewsbury said. "Basically, back when credit was first getting started in our country, you were judged on your character, status in society and who you knew, who knew you repaid debts in the past. Now, the way that our world is run by credit, credit reports have become the way for lenders to characterize us and judge us. This is the only way they're able to do that."

A credit report shows what lenders hold debt, who consumers have paid in the past, loans, open accounts, what lenders have recently looked into that consumer's credit and how well consumers have made payments. Credit reports also show bills that have gone to a collections agency.

"Medical bills don't show on credit reports unless they've gone delinquent," Shrewsbury said. "The key there is to make sure you're negotiating with that medical company. They're quick to send a collections report nowadays."

Thanks to the Fair Credit Reporting Act, consumers have the ability to dispute any errors they may find on their credit reports, which they have a right to review annually at no charge. The law requires the three major credit bureaus — Equifax, Experian and TransUnion — to take steps to ensure the information they obtain and sell is accurate. 

But that's not always the case, as Rockefeller found out. According to a Federal Trade Commission study released in February, the three credit bureaus reported 5 percent of consumers have material errors on at least one of their credit reports, and that could lead to higher interest rates or loan terms that are less than favorable.

An error on the report also could mean consumers' credit scores don't appear as high as they should. Shrewsbury gave an example of one couple she recently helped counsel. The couple thought they would be able to secure a home loan without any problem — with favorable interest rates and terms — so they were surprised when the lending institution denied their loan. After Shrewsbury pulled their credit reports, the couple realized they had medical bills in collections. That pulled their credit score down about 100 points. 

Shrewsbury said finding mistakes on credit reports is common. 

"It's very typical to find there's something wrong," she said. "Often, more than one thing is wrong. It's our right as consumers to have anything that is outdated removed from our credit report."

And there are ways to correct inaccuracies. Shrewsbury encouraged consumers to take a look at their credit report. If scores aren't considered good or excellent, a secured credit card that is used and paid responsibly will help show lenders creditworthiness. Consumers also can contact the credit bureaus and collections agencies to clear up any mistakes as long as there is documentation to prove the payment has been mistakenly reported as delinquent. If a consumer finds he or she can't pay a bill, such as a medical bill, Shrewsbury encourages the consumer to negotiate a payment plan that is reasonable. And maybe most important, pay all bills on time.

"A late (payment) does affect you," she said. "If it's in recent history, it will affect you the most. If you had mistakes happen in the past, rebuild and make sure that doesn't happen going forward."