When you borrow money from a bank or other lending institution, they’ll notify at least one of three main credit bureaus about the loan, and keep them updated on your payment history. Having your track record of loan payment available helps creditors determine whether you’ll be a risky person to lend money to. Learn more about credit reports and credit scores.
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As you can imagine, managing credit history for hundreds of millions of Americans can be a pretty big job, and there are often errors in credit reports. When you look at your credit report, you may find that one or more of the bureaus has recorded a loan that you don’t know anything about. There are several reasons this could happen.
It’s possible that someone with the same name as you opened a loan, and you were mistaken as the borrower. Typically, they’ll verify using several points of data, including your social security number, addresses where you’ve lived in the past, and public records like property tax databases. But nobody’s perfect.
If the person who actually opened the loan is making their payments on time, having an error of this sort on your report could actually boost your score, but since you probably don’t know who that person is, and can’t verify that they won’t miss some payment for some reason in the future, it’s best (and honest) to get the error fixed.
It’s fairly common for borrowers to see old credit cards and other smaller consumer loans they thought were closed out. If you see a credit card on your report from years ago, it’s possible that you paid it off but forgot to actually close the loan. It’s also possible that you asked the bank to close the loan, but they screwed up and didn’t. And yet another possibility is that they reported the loan closing to one of the credit bureaus, but the change got lost in the shuffle and the other bureaus weren’t notified.
There are many ways to get money illegally by pretending to be someone else. Identity theft–as pertains to credit–generally happens when someone opens a loan or buys something on credit using another person’s information. The thief may have stolen your mail, hacked your online accounts, or found some other way to get enough of your personal data to pretend to be you. They open a loan in your name, withdraw cash or buy a bunch of stuff, and go on their way, sticking you with the bill. Since you don’t know what they’re up to, you may go for months or years without realizing that missed payments are stacking up on your credit report. That’s why it’s very smart to get a free copy of your credit report as often as you can from www.AnnualCreditReport.com.
Helpful or hurtful?
If a loan is mistakenly attributed to you, it’s smart to get it corrected as soon as possible. It’s true that if the real debtor has great payment history, it can actually improve your likelihood of getting a loan and a better interest rate. But life happens, and if you don’t know that borrower and they suddenly stop making payments–for whatever reason–it can make you look bad.
How to get bad information corrected
The FTC (Federal Trade Commission–a government agency responsible for protecting consumers like you from getting hosed by bad lenders) offers a comprehensive set of instructions for disputing misinformation with credit bureaus. You’ll need to write a letter to the credit bureau(s) with the error, describing the issue and providing true and accurate information. You’ll also need to provide documentation–for instance, if you actually made a payment that you aren’t getting credit for, you can provide a receipt. It’s often easier to contact the lender that’s made the error and demand they rectify it.