Americans Threatened by Inaccurate Credit Report Scores |
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It is very common for people to pay extra for insurance or utilities because of inaccurate credit report scores. They are even denied credit because of the errors in their credit report score. According to a recent study conducted on Credit Score Accuracy and Implications for Consumers by the Consumer Federation of America (CFA) and the National Credit Reporting Association (NCRA), these errors are not properly founded and are usually false. A recent analysis of the credit report scores in 502,623 credit files revealed that 29% of these consumers had scores in the range of 50 points, while 4% of the consumers had scores in the range of 100 points. The average range of these scores was 41 points, and the median range was 35 points. These came across as gross discrepancies because credit report scores range from approximately 400 to 800. This huge discrepancy in credit report scores, which is so rampant, reveals the importance of consumers quickly learning about and correcting inaccuracies. Creditors should provide a copy of credit reports free of charge to consumers and then reconsider their denial or approval of a loan based on corrections made in the credit report. This research was conducted with explicit safeguards to protect the privacy and anonymity of all consumers whose credit records were examined. No names, addresses, social security numbers, dates of birth, account numbers or any information that could be used to trace back to a specific consumer were recorded during the research. A credit report score is a single number, based on an analysis of information contained in a credit report of a person. It provides an indication of the creditworthiness or in simple terms, his or her ability to repay the debts. It is based on a plethora of information in the credit report including payment history, amount of debt owed, and types of credit used. Credit report scores, and the credit reports on which they are based, increasingly influence a consumer's capability to have access to credit, housing, insurance, basic utility services, and even employment. The increased usage of credit report scores has a marked influence on the credit decisions being made these days. It also affects the customized pricing of credit, and the overall efficiency of credit approval. However, in consumer lending, inaccurate credit report scores can result in unfair treatment of borrowers who are either denied credit or charged unreasonably high prices for credit. There are varied reasons cited for the discrepancies in the credit report scores. Common errors of omission were one of the main causes of errors in the credit report. This involved the failure to report a negative event for example a delinquency or charge off or a positive event like a timely payment on an account. Seventy eight percent of credit report files made an omission of a revolving account in good standing while one-third (33%) of files did it in case of a mortgage account that had never been late. The above study focuses particularly on consumer credit risks, especially in the purchase of mortgage loans. It reveals that for the first or second mortgage loan purchasers, a credit report score of 620 is necessary to qualify for the prime loan at conventional rates. Consumers with scores below the level of 620 are likely to be charged sub-prime rates or be denied the loans. According to CFA and NCRA, the credit report scores between 575 and 630 where there was at least a 30-point range between low and high credit scores were placed in the at-risk category. Falling below the credit report score of 620 cutoff points can impose significant costs on mortgage borrowers. For instance, in case of a 30-year, $150,000 mortgage, a borrower incorrectly was incorrectly charged a sub-prime rate of 9.84% instead of a prime rate of 6.56% and was eventually made to pay $317,517 in interest instead of only $193,450 in interest, which amounted to a huge difference of $124,067 in interest payments. It is usually noticed that consumers are not informed about the reasons for the credit report score being low and useful and timely information like factors contributing to the errors in the score are kept away from them. These can be factors like serious delinquency, derogatory public record, collection filed or a combination of these factors. |
