CBS’ 60 Minutes labasted the credit reporting industry on Sunday evening citing an FTC investigation that revealed that upwards of 20% of Americans had “errors” in their credit reports and that 10% had errors that were so serious as to have a dramatic effect on their credit scores.  Credit reports are engrained into the financial culture of our lives at a level where even the smallest errors could cause increases in the cost of many products ranging from life insurance to auto and home loans.  Because I am in the real estate lending industry I’ve seen thousands of credit reports as a necessary part of the loan process I am able to provide a testimonial that a lower credit score can have a dramatic impact on the cost of borrowing home mortgage money.  In fact, if you consider a hypothetical 30 year fixed rate loan for $300,000 and compare the interest rate that would be offered to a qualified borrower with a credit score in excess of 740 as compared to one provided to a borrower with a 639 credit score you will find that the borrower with the lower score would pay $137.66 more per month or an extra $50,000 over the 30 year life of the loan. Layering into that equation the reality that the low credit score borrower’s homeowner and auto insurance policies would command higher premiums its easy to understand why it’s vitally important to know, manage and protect that credit score.  For Boomers entering the phase of their financial lives where every dollar commands an increasing amount of respect, having control over the information in their credit reports takes on even greater importance.

There is a fundamental difference between a Credit Report and a Credit Score.  While consumers are allowed to obtain a free copy of their credit reports annually from all 3 of the primary repositories of credit information those complimentary reports do not include the “predictive” score that lenders and underwriters use in their pricing calculations.  When a consumer logs on to the website, www.annualcreditreport.com , the option is available to obtain at no cost the raw data that exists in the files that each of the credit bureaus maintains for every potential borrower.   However, if the consumer is motivated to find out just exactly what their “score” might be they are directed to the sites of the individual repositories where there are any number of options available for obtaining that score, all of which require the payment of an upfront fee and often times the hard sell to subscribe to a recommended service.  The only other option for knowing a credit score is to request that information from a lender or insurance company that may have recently obtained a credit report on a customer’s behalf.  The exact formula for determining an individual’s score is a closely guarded secret in the industry and one that is changeable based on the performance of the entire database but certain general rules separating good from bad credit scores are typically well-known such as making sure all payments are made on time, the level of outstanding balances on revolving credit accounts is low relative to the available credit amount and there is an absence of foreclosure or bankruptcy activity.

It is important to understand that the repositories of this data, TransUnion (TU), Experian (XPN) and EquiFax (EFX) are best thought of like one would a library. If a reader checks a book out of the library and they are unhappy with the content of that book they are bound to be disappointed if their expectation is that the librarian will have an impact on influencing the author of said book to change the content.   At best, the librarian could contact the author and lodge the complaint on behalf of the reader but changes in the content must come from the author directly in future editions.  In much the same way, consumers that discover erroneous information in their credit reports are best served by making their complaint directly to the provider of that wrong information and then obtaining written evidence that the report is, in fact, erroneous.  While the methodology exists for consumers to lodge their complaints with the credit bureaus reporting said errors, the credit reporting agencies responsibility begins and ends with their attempt to “investigate” said error on behalf of the consumer.  Most often, that involves an electronic message to the creditor indicating that the consumer doesn’t agree with the way the information is reported in their file, followed by the electronic response from the reporter as to their opinion about the validity of that information.  It is NOT the role of the credit bureau to ajudicate a dispute between a creditor and borrower.  On the other hand, if a consumer is armed with written evidence provided by the creditor that the report is in error, the credit bureau will most times immediately make the change to the consumer’s credit profile after validating the written proof.  While other types of errors occur, including those involving mistaken identity, far and away the disagreement about how an account is reported in an individual’s credit file causes most of the challenges for consumers.  There is a good amount of rhetoric floating around as a result of the FTC’s investigation into credit reporting practices that changes in those methods will occur.  However, it’s likely that years will transpire before meaningful modifications in the way those errors are investigated and reported will take place.  The intevening period could be quite expensive for those Boomers needing to borrow money or obtain insurance coverage.

As Boomers approach the promised land of their golden years its important that they know exactly what lenders, insurance underwriters and in many cases, prospective employers will see when they obtain a copy of their credit report.