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How To Remove Errors From Your Credit Report

 

Your credit report contains a lot of information about your ability to repay money borrowed, and, is used by a large number of companies as a screening mechanism. Insurance companies, employers, utility companies, and of course, mortgage lenders, pull your credit file when you complete an application. One important distinction to remember is there's little correlation between how well you handle your finances and your credit score.


It's a common misconception having a high income means having a high credit rating and that a low income translates into a low score. This isn't so, because a person with a substantial amount of investments and a great income, who uses little to no credit, might well have a lower score than another consumer who has little to no savings, a small income, but uses credit a lot responsibly.

Understanding Your Credit Score


The fact of the matter is, it isn't about your investment and cash position when it comes to your credit file, it's all about your demonstrable ability to repay borrowed money. This is why your credit score is determined by five factors, and, each accounts for a percentage of your total score. (Take careful notice there's no inclusion of personal assets, or, income.) The largest factor of your credit score is payment history, accounting for 35 percent of the total. Next is credit utilization, or, the ratio between balance and available credit, which comprises 30 percent. Length of credit history accounts for 15 percent, and, new credit and credit mix are 10 percent each.

Under the Fair Credit Reporting Act, both the credit reporting company and the information provider (that is, the person, company, or organization that provides information about you to a credit reporting company) are responsible for correcting inaccurate or incomplete information in your report. To take advantage of all your rights under this law, contact the credit reporting company and the information provider. --Federal Trade Commission

When you first enter the home loan process, you'll probably be prequalified -- this is a cursory look at your credit file. Next, you'll go through the preapproval process, which is an in-depth examination of your credit file, and, your finances. Here again, it's revealed your personal finances have a large impact on your qualification.

How to Remove Errors from Your Credit Report


All of this isn't to discount the importance of your credit score, because although applicants with high-mid range to high scores do meet certain criteria, meaning they are typically eligible for a better interest rate. Over the life of the loan, just 25 basis points adds up to thousands and thousands of dollars. So, it's imperative your credit file be in good order before you apply for a mortgage. In a consumer report, CBS News revealed on 60 Minutes that 40 million credit reports contained errors, 20 million enough to cause loans to be denied. Here's how to remove errors from your credit report:


  1. Request copies from all three credit bureaus. Your first task is to request a copy of your credit file from all three credit reporting agencies: TransUnion, Experian, and Equifax. You can do this free of charge, once a year, by going to Annual Credit Report.com.

  2. Go over each credit file to identify inaccuracies. No matter how insignificant the mistakes might be, these should be corrected. Of course, you'll want to focus on the larger errors. Once identified, if you have proof of payment, then make copies and prepare to file disputes.

  3. File a dispute with the creditor and the credit agency. One huge mistake consumers make is to file one dispute with the original creditor and another with the reporting bureau. These should be the same and should always be in writing, sent certified mail. Do not use the online dispute form because it is not sufficient to submit a comprehensive dispute.

  4. Follow-up in 45 to 90 days to ensure the errors are removed. Unfortunately, this might not be the only action you'll have to take to get errant items removed from your credit file. You'll have to follow-up to confirm the errors have been removed.

  5. Get another copy of your credit file after the dispute and review it. In most states, after the filing of a dispute, you are eligible for another copy of your credit report to verify updated information which reflects the removal of the errors, according to myFICO.com


Persistence and patience are key qualities when it comes to disputing inaccurate information on your credit file. If you have proof of resolution of the debt but are unable to get the errant item removed, you can file a small claims lawsuit against the creditor and credit bureau, or, contact the Consumer Financial Protection Bureau for assistance with your claim. When you are ready to buy a home, be sure to get your credit and finances in-order prior to touring properties and shopping mortgage products.