Lenders are involved in another big credit scam that causes your three-digit score to drop and your interest rates to shoot through the roof.
It’s no secret that credit reports are awash with errors—in fact, almost 90 percent of people have at least one error on their credit report, and 25 percent of these errors cause people to lose loan or job opportunities.
But why these errors are so prevalent has always been a mystery. Brian Diez, an expert in credit scoring scams, shed some light on the credit scam that is behind all these errors.
The Big Credit Scam
The lenders responsible for reporting your information to the credit bureaus have a vested interest in reporting inaccurate information that degrades your credit score. Why? The lower your score is, the more interest they can collect from you in future years.
And when you file a dispute about inaccurate information, the lenders are responsible for verifying the accuracy of their own information.
Sounds a little sketchy, doesn’t it? You might be doing everything in your power to build credit, but your creditors are working against you!
Let’s start with how the errors are entered originally.
The computer systems that collect and report information about consumers are not required to have an exact match. If a last name and a Social Security number match, the computer might consider it “good enough,” even if the address, city, state, and first name do not match.
This means that your credit file can easily be merged with another person’s file. In fact, 44 percent of all identity theft claims are nothing more than the result of a merged credit file, meaning somewhere along the way, a computer system decided that mismatched information was “good enough.”
The credit scam gets worse. You will have to jump through hoops to get this information corrected. Imagine, for instance, that you write a letter to a lender explaining that they have inaccurately reported information to the credit bureaus.
Unless you are a celebrity, politician, or lawyer (congratulations if you are—your errors will be addressed almost immediately!), your letter will be sent through a computer system that will somehow determine whether the letter is frivolous. If the computer does determine that your letter is frivolous, the lender won’t even process your dispute.
That’s right—a computer will decide whether your complaint has merit.
Let’s assume that the computer decides that your complaint is valid. In this case, Diez says that your letter will be outsourced to India, Costa Rica, Jamaica or the Philippines where a foreigner who speaks English as a second language will read your letter and assign it a two-digit code.
This two-digit code will determine the action that should be taken on your complaint, as well as the computer-generated letter you will receive.
So instead of having an actual person do actual research into your complaint, the lender will take the easy way out.
Of course, lenders stand the most to gain by perpetuating this credit scam. By keeping sloppy records and having a shady dispute-resolution process, lenders degrade your credit score. And this means they can collect higher interest rates when you apply for future loans.
Philip Tirone is the author of 7 Steps to a 720 Credit Score, as well as the founder of the Credit and Debt Summit webinars, where experts like Brian Diez, T Harv Eker, and David Bach provide free webinars about credit scams, debt, and money management.