Credit Reporting Errors: When Legal Action Might Be The Next Step

An attorney can help consumers who are unsuccessful in disputing significant errors on their credit reports

Sandra Parsons
MoneyTips Contributor

Credit Rating Borrowing

Credit Reporting Errors: When Legal Action Might Be The Next Step
May 2, 2019

If you check your credit report regularly (and you should), there's a reasonable chance that you've come across an error.

A 2012 Federal Trade Commission study of U.S. credit reporting found that upon reviewing their credit reports, one in four consumers identified errors that might affect their credit score. Further, 1 in 20 found errors that might lead to financial impacts, like paying a higher interest rate on an auto loan.

Taylor Kosla, an attorney with Agruss Law Firm, works with many clients who've been impacted by inaccuracies on their credit report. She says, "It happens all the time. And unfortunately, I think mistakes on credit reports are just becoming more costly to consumers."

The three major credit reporting agencies in the U.S. all have a process for filing disputes online, and they all promise to complete investigations within thirty days. But what happens when those investigations don't result in resolution? What is your next step?

Depending on the severity of the error and the impact on your life, the next step might be legal action.

Debt Inaccuracies are the Most Common Mistake

Kosla says the types of errors her clients identify on their credit reports vary, but the most common examples include inaccurate amounts owing for debts, or mistakes in a debt's repayment schedule. That means a report could be showing that a consumer owes more than they do, or it might be showing that they're late on a payment they've already made.

But those aren't the only types of errors that can pop up on a credit report. Some are relatively benign, like a misspelled name or an incorrect address. However, sometimes pieces of someone else's credit report can accidentally make their way onto yours. This is called a mixed file, and it can be a major problem for unsuspecting consumers whose credit score and creditworthiness suddenly take a hit because of debts that don't belong to them.

Kosla describes a mixed file case she got resolved for a client:

"These weren't their actual names, but let's say it was a John T. Smith and a John S. Smith, father and son, and the father's information was reporting on the son's credit report, and there was some negative reporting. The son disputed it; the credit bureaus didn't fix it, so we had to file suit and get it fixed. But somewhere along the way, it appears their files had been mixed, likely because they had the same address, similar names, so it was just that middle initial that caused the credit reports to be mixed."

Unsuccessful Disputes Abound

Although each of the three credit reporting agencies has simple procedures in place for disputing errors, there's no guarantee that a dispute will result in a satisfactory resolution.

When a consumer comes to Taylor Kosla for help because they've identified an error on their credit report, her first step is to advise clients on how to write a dispute letter to the credit reporting agency and the debt collector (if applicable).

She encourages clients to include as much evidence and documentation as possible to strengthen their dispute. This could include things like a copy of your driver's license, proof of address, or a copy of a police report in the event of identity theft. Let MoneyTips protect your credit and your identity with a free trial.

More often than not, though, dispute attempts are unsuccessful, and the only option is to file a lawsuit.

"Sometimes people come to us after they've tried disputing inaccuracies with the bureaus. And they might do that through an online submission, their own written letters, but in their experience, if they've disputed it and nothing happens, they feel like they're just out of luck and it is what it is. But we're able to take those next steps to get those credit reports cleared up," says Kosla.

Consumers Have Legal Rights

The Fair Credit Reporting Act (FCRA) protects consumers from harm resulting from inaccurate credit reporting.

Credit reporting agencies are legally obligated to correct or delete inaccurate information, generally within thirty days – this is the time they have to complete an investigation in response to a dispute. However, if they determine the disputed information to be "verified," they can continue to report it. This is when it may be necessary to pursue legal action.

"If inaccurate information comes back verified, we file suit against both the debt collector and the credit bureaus. The debt collectors would be on the hook for reporting inaccurate information to the credit bureaus, and then the credit reporting bureaus for reporting the inaccurate information to our client's credit report," says Kosla.

Under the FCRA, consumers who are negatively impacted by inaccuracies on their credit reports may be entitled to the following types of compensation:

  • Statutory damages up to $1,000
  • Actual damages
  • Legal fees and costs

"So basically, if the FCRA is violated, a consumer can get up to $1,000, plus the tradeline fix or deletion. In addition to that, those actual damages – the higher interest rate on a loan or getting denied for a loan – those are also provided for in the statutes," explains Kosla.

So not only can consumers be compensated for the financial impact they experience as the result of an error on their credit report (like having to pay a higher interest rate on a loan), they can also be awarded up to $1,000 and have their legal fees covered.

Kosla's firm has a high success rate when filing suit for inaccurate credit reporting. Both sides are usually keen to settle quickly, although it can take longer when there are substantial damages to consider.

Review Your Credit Report Regularly to Minimize the Impact of Inaccuracies

You may not always be able to prevent credit reporting agencies from making mistakes on your report, but you can minimize the impact by reviewing your credit report regularly. If you notice anything out of the ordinary, it's important to take action and dispute the inaccuracies immediately to avoid any negative repercussions. You can check your credit score and read your credit report for free within minutes by joining MoneyTips.

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