How to Fix a Mistake on Your Credit Report

(Image credit: danielfela)

published 23 September 2019

Ryan Ermey: You've checked your credit report and ... there's a mistake or evidence of fraud. It may be a battle to get it fixed. So we've brought in the heavy artillery for you. Kiplinger credit maven Lisa Gerstner, who joins us for a main segment interview. On today's show, Sandy and I get you ready to budget early for holiday shopping and a new edition of Financial Fact or Fiction revolves around credit card usage and evaluating mutual funds. That's all ahead on this episode of Your Money's Worth. Stick around.

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Ryan Ermey: Yeah. So when we start thinking about holiday budgeting, to me it's about being proactive and actually creating a budget. And this is worth thinking about now because we all end up doing the same thing when the holidays actually roll around, which is you wait until the last second to buy everything for everyone on your gift list. And you go, "Ah, it's like 10 bucks more than this, and it's another 50 bucks. Alright." You know, like whatever. And you end up going way over budget and you can get yourself in trouble.

Ryan Ermey: ... decorations, you want to but booze to bring to parties. Try to factor all of that in and come up with a number that you're comfortable with. And then to make sure that you're not going to go over, consider putting the money into something like a low-fee prepaid card. We like the AMEX Bluebird card, which is low fee. It comes with FDIC coverage, even has some handy budgeting tools. And then once that money's gone, it's gone.

Ryan Ermey: ...really, yeah, exactly. Do it like line items. Yeah. Mom is at the top and gets the most money going all the way down to whoever. And if you're doing that thing where, "Oh no, my friend got me this gift, I should give them something back." Leave a little bit of room at the end there for a little bit of wiggle room. But the point of the exercise of breaking things down by line items like that is that you don't end up spending $65 on aunt Debby and then you have $10 left in your budget for mom.

Sandy Block: Right. And we actually have a slide show on our website that has all kinds of ideas. Some of them, which I discarded, because for me they were too much work. I am not going to start walking dogs or driving Uber, I just, I'm sorry people, I don't care about you that much. But there were some good ideas that require minimal effort that I took note of that I thought were really interesting. One is to look for unclaimed property. There are billions of dollars in like leftover bank accounts. Paychecks you didn't get, I found some stock dividends a few years ago, and it's very easy to search for them. One of the, we'll put them on the show notes, but the most popular website is www.missingmoney.com so go on there. You put in your name, your address, and you find out if the state's got some money you forgot about. Well, that's really easy.

Sandy Block: Another one, and this one I have also applied, used to buy gifts... to see if you've got unused rewards on your credit cards. Now I know a lot of our readers are very vigilant about using their rewards, but a lot of people just happen to have a rewards card. And what I do is periodically I go on mine and cash it all in for Amazon gift cards. And then I just have them in my file and then I use it to buy gifts. And you can buy practically anything on Amazon. So that's some extra money laying around that you might know about. You got any ideas, Ryan?

Ryan Ermey: ... you may also have gift cards laying around. I think I have gift cards that I received as gifts that I haven't used for a couple years. We've recommended websites in the past that you can exchange those for, I mean, you don't want to, re-gifting is always tough and unless it's something maybe you got a Home Depot gift card that your dad would love or whatever. But otherwise you can cash in old gift cards or exchange them for other gift cards that people might like. Of the suggestions laid out by our colleague Bob Niedt in that slideshow, that's N-I-E-D-T, for those who are interested. There's a couple that stood out to me that seemed fun.

Ryan Ermey: Yeah, really. Sure, what could go wrong? Show up at Christmas is like a third eye growing up. But there's a couple that I think sound fun. One is doing TaskRabbit or Fiverr, sort of small gigs for stuff that you already kind of like to do. You know, for me, I'm like a fastidious grammar person. Maybe I can pick up a couple of extra little jobs, copy, editing or doing something like that, just for a little bit of extra money. There's a very, very trendy restaurant like caddy-corner to me in my fun, hipster neighborhood in D.C. And there's people online, there's no reservation. So there's people online there starting at about 4:00 every single day.

Ryan Ermey: And, am I going to go around and tell them the history of the Jefferson Memorial? No, but I could run a pretty good dive bar tour. And it's fun, you get to meet new people, and you can charge, I mean, if you go on these sites and look around, you can charge a lot of money to bring people to the same crappy bars you're drinking at anyway. So the bottom line, if you want to find ways to pump up your budget a little bit for the holidays, go right ahead. But the bottom line is you should have a budget and stick to it. Otherwise you could really get into trouble over spending. So like I said, mom at the top of the list, make sure you know what you want to spend and you should be okay.

Ryan Ermey: So you have a story in the October issue of Kiplinger's, Battle the Credit Bureaus . . . and Win, like a hardcore headline, I love that. So we're always reminding readers to check their credit reports at annualcreditreport.com and to check to see if they have any mistakes. But what the story points out is that if someone actually finds a mistake, it may be tougher to remedy than they think. Why is that?

Lisa Gerstner: The system is not necessarily designed to be consumer-friendly, and a lot of it is automated. So say you find a problem on your credit report, something is an error, and you want to go to the credit bureaus and have it fixed. You submit your dispute and you can write up a whole letter describing what the problem is. But what they're going to do typically is just distill that dispute into a two or three digit code based on the type of dispute that it is. So, it all gets down into just a couple of digits and then it's sent to the lender or whoever supplied the data in question. So, that could be a collection agency or whoever that may be.

Lisa Gerstner: So then that data furnisher reviews the case, decides whether there's actually an error here or not in their opinion. And then they send that information back to the credit bureau and the credit bureau regurgitates it back to you. That's typically how the process works. So there's really not a whole lot of room for nuance when everything is so automated. And that's difficult for people to come back or battle as we used in the title of the story. So I think that's really where a lot of the problem comes in. And it's just such a massive system that we're dealing with. The credit bureaus have information on so many people and so many disputes that they have to get through.

Lisa Gerstner: So I think that's where the root of the problem really is. There had been some reforms in recent years that are, they're supposed to help with this. So if you send supporting documents in with your dispute, like a bank account statement, for example, saying that you paid a bill, even though it's being reported that you didn't, they should be sending that onto the data furnisher. And the furnisher should be considering that. And the bureau should be conducting some of their own investigations on their end. But studies I've seen kind of surveying what's going on here suggest that all of this isn't necessarily happening or if it is, it's not really at the pace that they would want it to be. So, that's what you're up against when you're looking at disputing an error with the credit bureaus.

Lisa Gerstner: The biggest problems are going to be either accounts that don't belong to you, maybe a credit card that was opened in your name, but it's not yours that perhaps an identity thief is out there at work, or maybe collection accounts that show up in your name. It could be from a medical bill that a thief didn't pay, or utility bills or loans or anything like that. Anything on there that's really negative information, it can have a significant effect on your credit score. It can drop by a hundred points or more when something like this happens. So those are the ones that are really problematic and that you absolutely need to get resolved. Other things that you should keep an eye on even on legitimate accounts that you do own, make sure that the balances are correct, that any accounts that you've closed are marked as such.

Lisa Gerstner: Accounts will typically stay on a report for another 10 years after they're close, so just makes sure that it's marked that way. And then just personal information about you. So if you see an incorrect address, that could be a sign of identity theft, it may seem kind of harmless, but things like that actually can be a problem. So mixed files also, those can be really difficult for people to resolve and an incorrect address can also be a sign of that. So if someone has maybe a very similar name to you, and a similar Social Security number, sometimes the bureaus will actually get that information mixed up between the two of you. And then you've got all this incorrect information on your report.

Lisa Gerstner: Going to the furnisher is often your best bet to actually get that information removed from your report. Because as I'd mentioned, they're ultimately the ones deciding, the credit bureau is just going to send it over to them and they're going to review your case. So if you can talk to that furnisher and convince them that something is wrong, they have to go back to the credit bureaus and correct information with all the bureaus that are reporting it. So, usually your credit report will show contact information for that furnisher. You can call them. Try to go through the system. If the first person doesn't help you, ask for a supervisor. Ask for someone in a different department, you may have to be persistent and keep trying.

Lisa Gerstner: So if this doesn't work out. Yeah, if they don't correct this error or the fraud that's on your account, it preserves your right to file suit against the lender or the bureaus. So you do want to do that. And I talked to a lot of attorneys for this article and all of them said, "File your dispute in writing on paper and send it over snail mail." Going online is quicker and it's easier and you may get a faster response, but then you have that paper trail if you do have to go to the legal route." So that's one bit of advice there. And I would just say be very clear and concise when you're writing this letter describing your problem because it's all automated, nobody's really going to be reading your novel about this terrible problem that you're having.

Lisa Gerstner: The law actually has special stipulations for fraud or identity theft and that works to your advantage. It often means that you're going to get a quicker, more streamlined result, but you do have to take certain steps for that. So what you want to do is go fill out an identity theft affidavit at identitytheft.gov, you go through, describe all the problem that you're having, and then you're going to have to send that to the bureaus along with proof of your identity, a description of which information on your credit report is fraudulent, and then just a statement saying that this resulted from a transaction that wasn't yours.

Lisa Gerstner: If you take all those steps and you send that in, they're supposed to remove the fraudulent information from your credit reports within four days. It's often a good idea just to contact the bureaus first, just to make sure that you're sending the information to the right place, that you're providing the type of proof of identity that they want, whether it's a driver's license or a birth certificate, whatever it may be. But in the ideal world that will go a little more smoothly for you than an error.

Lisa Gerstner: A good step to take is try submitting your complaint to the Consumer Financial Protection Bureau. They have a whole portion of their website dedicated to complaints, and what they'll do is take your complaint, they'll send it to any bureaus that you mention, and then the bureaus are supposed to review that and send a response. And then the CFPB will get that response back to you. That may get their attention more than going kind of the standard route, which you should try first. Also, sometimes there are state agencies that can help -- your Department of Consumer Affairs, Attorney General's Office, other places you could go to.

Lisa Gerstner: Another one that I thought was kind of an interesting suggestion that I heard was writing to your Congressman or Senator. I'm not sure how effective it is. I'm not sure if they'll take notice of your letter, but if they do and they decided to contact the bureaus on your behalf, that will certainly get their attention. And then when all else fails, take legal action. You can go to a lawyer. There's a website called ConsumerAdvocates.org and they actually have attorneys who specialize in credit reporting on there, if you kind of search through their menu you can find them. And those attorneys often work on contingency. So if you take the case to court and it doesn't win, you don't pay anything, if it does win, they take a cut of your compensation.

Lisa Gerstner: Most of the time that's something you want to avoid. So credit repair companies often they'll promise to clean up your credit report for a fee, but sometimes they'll even combat legitimate information that should be on your report. Accounts that you paid late and things like that. And so because of that, the credit bureaus can just dismiss them if they think that that's what they're doing, that they're actually trying to fight information that should be on your report. So, that's one reason you don't want to go with those. And plus, you can do better on your own without paying a fee as long as you know the system.

Sandy Block: That's right. It doesn't matter if you're not. This is a little counterintuitive because you think you're trying to clean up your credit score and prove... get rid of some of these credit cards, right? Why not? Well, here's why. Because the calculation of the credit score includes something called a credit utilization ratio, and basically that is a ratio based on the amount of overall credit that you have access to and the amount of credit that you actually use.

Sandy Block: Right, they don't want you to use everything you got, right. So the lower your utilization ratio, the higher your score. So closing credit cards, while that might remove some temptation, is going to reduce your available credit. And unless you really reduce your spending by that same amount, it could hurt your score. So the advice I think I would suggest is just, if you have credit cards you're not using, don't close them, just put them away.

Ryan Ermey: So a funds long-term performance is an important thing to consider. You always want to take a look at a mutual fund's track record. But you want a fund that can perform consistently well against its peers and against its benchmark index. So the deal with one, three, five, 10 is a fund can be an absolute dog for nine and a half of those 10 years. But then in the most recent six months, it went up 1000%, and that's going to boost all of those numbers.

Ryan Ermey: Morningstar breaks these things out into categories. So, like a large growth fund or something like that, like an S&P 500 fund would be a large company US blend fund and how it's doing against its index. And there are a couple other important things to consider. Of course cost is one of the very, very most important determinants of investment outcomes. So you want to look for funds that charge inexpensive or at least below average expense ratios.

Ryan Ermey: Volatility is another thing to consider. So what we're talking about, for year to year performance, you should be aware if a fund has sort of big swings in performance and that's how it drives its long-term returns. Or if it's sort of more of a steady Eddie. One metric that you can find for a mutual fund is standard deviation. If it's higher than the index, that means that it's more volatile than that index. One more thing to consider for active funds is manage your tenure. A fund can have a 20-year track record, but that really doesn't mean much if the person who was running the show-

Ryan Ermey: And you get broad diversified exposure to, I mean, you can get basically huge chunks of the market, like the whole US stock market, or you can get very niche sections of the market, say a particular sector or even region, and you're going to do that in a low cost, diversified way. And most active managers in fact don't beat their benchmarks on a long-term basis. So for cheap, broadly, diversified exposure, that's worth it. But on the whole, when you see these commercials that say, you know-

Ryan Ermey: ..."Best one, three, five and 10." That doesn't really mean a lot. So it's worth drilling down, especially if you're considering an actively managed fund, one that's trying to beat an index on a regular basis. It's worth looking at that performance parsed out to see how consistent the performance has been over time. And that'll just about wrap it up for this episode of Your Money's Worth. For show notes and more great Kiplinger content on the topics we discussed on today's show visit kiplinger.com/links/podcasts. You can stay connected with us on Twitter, Facebook or by emailing us at podcasts@kiplinger.com and if you like the show, please remember to rate, review and subscribe to Your Money's Worth wherever you get your podcasts. Thanks for listening.

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Block joined Kiplinger in June 2012 from USA Today, where she was a reporter and personal finance columnist for more than 15 years. Prior to that, she worked for the Akron Beacon-Journal and Dow Jones Newswires. In 1993, she was a Knight-Bagehot fellow in economics and business journalism at the Columbia University Graduate School of Journalism. She has a BA in communications from Bethany College in Bethany, W.Va.

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