About 5% of consumers have a credit report error that would affect their loan terms, according to an FTC study on the credit report industry. It's a small percentage, but considering there more than 200 million consumers with credit reports, it means several million consumers may have errors that cause them to get less favorable loan terms.
Consumer groups have often stated that a large number of consumers have errors on their credit reports. According to the FTC's study, 26% of participants found a potentially material error on their credit reports. A potentially material error is one that would likely affect a consumer's credit score based on the known credit scoring factors, like an inaccurately reported late payment, for example.
Consumers who found errors disputed them and 21% had a change to their credit reports after disputing. Of those who disputed, 13% experienced a change to their credit scores after the disputed information was corrected. And 5% moved to a better credit tier after their credit score changed.
The credit report corrections overall didn't yield significant credit score increases. However, some consumers were on the edge of their credit score tiers and the increase was enough to bump them up into the next tier, e.g. from average to good or from good to excellent.
Since loan interest rates are based on credit scores, having the best possible credit score is important. For example, with a 690 credit score, you might receive a 3.624% APR. On a $150,000 30-year fixed mortgage, the monthly payment would be $684. Over the loan, you'd pay $96,237 in interest. With a 20-point increase, your score would be 710. You'd qualify for a 3.449% APR with a monthly payment of $669 and total interest of $90,949. That's a monthly savings of $15, but an total interest savings of $5,288. (Numbers based on myFICO's loan savings calculator.)
Lenders are required to send a free credit score to consumers who are approved for less favorable terms because of their credit scores. If your credit report was also used in the decision, you'll have 60 days to order it for free. Otherwise, you can get a free copy of your credit reports from the major credit bureaus once a year through AnnualCreditReport.com. Watch out for free credit report or credit score scams. Your credit card number isn't required for any truly free credit report or score.
The FTC study included 1,001 consumers reviewing 2,968 credit reports.