According to a new report released from the Consumer Financial Protection Bureau, only one in five consumers check their credit reports each year. Richard Cordray, the agency’s director described the situation as a “shame” while speaking with reporters.
The Consumer Financial Protection Bureau’s Office of Deposits, Cash, Collections and Reporting Markets (DCCR) compiled the information from industry reports, existing reports and public sources.
This report is full of useful information for consumers. It describes the “infrastructure” of the credit reporting bureaus. The Nationwide consumer reporting agencies (NCRAs) “collect, compile and report information” about consumers through credit reports. The CFPB is currently in the process of examining the NCRAs more closely. The CFPB wants to ensure that the information financial institutions or other lenders provide to the NCRAs is accurate. Part of this report and the ongoing investigation is looking into how NCRAs respond when consumers dispute information in their credit reports.
Although the report has much to offer consumers, today we are focusing on the importance of monitoring your credit report.
Part of the problem is that many consumers do not realize they can obtain a free copy of their credit report each year from each of the three major credit reporting bureaus: TransUnion, Equifax and Experian. Consumers are entitled to one free report from each of these three companies per year under federal law. These companies have credit files on around 200 million consumers, but only 44 million or so check their reports each year. 26 million consumers each year seek out credit reports from credit monitoring services which require consumers to pay for their reports. One million consumers only seek out credit reports after being denied a credit application based on an unfavorable credit score.
The fact that so few consumers obtain annual credit reports is alarming given the importance of credit scores. Your ability to borrow money for a new car or home purchase depends on your credit score. The report stated that the “vast majority of approval decisions” on the nearly 113 million requests for credit card accounts, personal loans, auto loans, mortgages and home equity loans were based on information in credit reports. If you do not know your credit score, then you are going in blind anytime you try and apply for a loan. You might find yourself spending money to try and make a purchase only to find out later that you cannot qualify for a loan.
Another major reason to check your credit report is to make sure there are no errors. By monitoring your credit report, you ensure the fact that if an erroneous item pops up on your report that drops your score, you can address the issue sooner rather than later. In some instances, an item on your report might qualify for one program or another that drops it off your report in a shorter time period. If you do not monitor your report, you are left to deal with the consequences whenever you decide to apply for a new loan or credit card.