Your credit report contains information on your borrowing and repayment history. Each item on the report, known as a trade line, includes the name of the creditor, the amount of money borrowed and your repayment history. If you discover a mistake on your credit report, you should take the steps necessary to update the report with the correct information.
Significance
Creditors purchase your credit report when you apply for a mortgage, credit card, auto loan or other types of credit. If you have inaccurate information on your report, it could cause lenders to deny your application for credit. If you do receive credit approval, you may have to pay higher interest rates due to the incorrect items on your report. When you update your credit history, you have the opportunity to dispute inaccuracies and have them corrected or removed from your report completely.
Disputing Inaccuracies
Disputing inaccuracies on your credit report prompts the credit bureaus to investigate the errors and correct them, if necessary. You should write one letter to each of the three largest credit bureaus -- TransUnion, Equifax and Experian. Your letter should contain your contact information, a list of disputed items, reasons why you want to dispute each item and copies of documents backing up your claims, if available. Each credit bureau has 30 days from the time it receives your dispute letter to investigate your claims and respond. Each bureau may verify the information and let it stand, update inaccurate information or remove a mistake from your report.
Providing Identification
In some cases, the credit bureaus will delay their investigation until you provide them with proof of your identity. If you want to apply for credit in the near future and do not want to delay the investigation of any errors on your report, provide information about your identity when you send your dispute letters. Include a copy of your driver's license or state photo identification card, your full birth date and at least the last four digits of your Social Security number. In each of your dispute letters, indicate that you have enclosed information to assist in the verification of your identity.
Credit Accounts
Some people make the mistake of closing unused credit accounts in an attempt to update their credit histories and improve their credit scores. This action may actually hurt you, as the age of your accounts and the amount of credit available to you affect your credit score. If you close a 10-year-old account with an available limit of $5,000, you lose an aged account and reduce your total available credit by $5,000. Your credit score also takes your credit utilization ratio into account. This represents how much debt you have compared to your credit limits. If you have two credit accounts that each have a $5,000 credit limit, you have $10,000 in available credit. If you owe a total of $2,000 on these accounts, your credit utilization ratio is 20 percent. If you close one of the accounts, you reduce your available credit to $5,000 and your credit utilization ratio increases to 40 percent.
Results
If a credit bureau removes a negative item from your report, it could increase your credit score and qualify you for lower interest rates or more credit approvals. If a credit bureau simply updates a negative item with a different date or balance amount, it may not increase your score substantially, but it could affect your score in the future. Because negative items only remain on a credit report for seven years, correcting an incorrect date on one of your accounts could help the account "fall off" of your report sooner than it would have with the incorrect date.
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