Your credit report controls a good deal of your financial life – the kind of loans you get, the interest rates you're charged, even whether you're hired for a job. Yet there's a good chance your credit report isn’t totally accurate. A 2013 report from the Federal Trade Commission says one in four consumers’ credit reports has an error. What's more, the FTC reports that approximately one in 20 of those with errors on their credit report lost more than 25 points from their credit score as a result of those mistakes.

Mistakes on your credit report could mean you spend hundreds a year more in payments on mortgage, car loan and credit card interest than those with your financials but an error-free report. That is, assuming you can even obtain a loan or credit card.

On the surface, not all errors are as costly as others. Some mistakes may be a misspelling of your name, an incorrect middle initial or the inclusion of an inaccurate previous address, which in most cases won’t deflate your credit score. However, if a similar spelling of a name – or same name but different suffix (jr., II, III, etc.) – leads lenders to confuse you with someone who has poor credit, that person’s unsavory credit identity could show up on your credit report and drag down your score.

Also costly: having an account incorrectly labeled as past due, or with a late payment or a debt in collection (when none of this is true). These can drop your score dozens of points or more.

You Can't 'Repair' Credit

In an effort to clear up errors, especially when trying to obtain a loan or financing, it’s tempting to solicit the help of credit-repair specialists. But experts caution that could be a costly mistake, because you can’t “repair” credit.

“The term 'credit repair' is somewhat of a misnomer,” says Kevin Gallegos, vice president of Phoenix operations at Freedom Financial Network. “Credit cannot be 'repaired' or 'fixed.' It can, however, be improved by correcting errors.”

Credit repair typically refers to services that charge an often-hefty fee for trying to achieve a temporary improvement in a consumer’s credit score by disputing items in an individual’s credit file. Once a dispute has been filed, the onus is on the credit reporting agency to remove or suspend that account from the consumer’s record until the dispute has been resolved one way or the other.

“This action can provide temporary relief from adverse items in the file,” says Gallegos. Valid disputed items will be permanently removed from the credit report.

However, if an item in dispute is invalid, or is resolved in favor of the creditor or lender, it will go right back on the file after 60 days or so.

“This is akin to having a flat tire and putting a temporary patch on, expecting the car to run just perfectly into the future with no additional attention,” says Gallegos. “A temporary bump up on a credit score won’t necessarily cement approval of a loan, because if a [lender] does a bit of research and digging, that lender will uncover the disputes and see what is going on.”

“The biggest mistake consumers make is paying a service or individual to do what you can do for yourself for free,” says Gail Cunningham, a spokesperson for the National Foundation for Credit Counseling. “You could end up following inaccurate or illegal advice that can lead to a host of other problems.”

You could also be duped. “Some of these companies take payment and then 'vaporize,''' says Thomas Nitzsche, senior media relations coordinator, ClearPoint Credit Counseling Solutions. “We see many smart, educated clients who have engaged these bad players.”

Staying on Top of Errors

The best way to ensure your credit report – and to correct any mistakes – is to review it every four months.

You’re entitled to one free credit report annually from each of the three major credit bureaus: Equifax, Experian and TransUnion. Pulling one every four months is the best way to spot any error before it causes significant damage to your credit score. You can obtain a free annual copy of each report at AnnualCreditReport.com.

If you do spot an error, don’t panic. Instead, once you’ve gathered proof of the mistake (your canceled check or bank statement showing online payments, proof of the spelling of your name, etc.), dispute the error (regardless of the type) via annualcreditreport.com. “This ports consumers to each credit bureau one-by-one where they can review and dispute information as needed,” says Nitzsche.

You can also contact a creditor directly to dispute issues such as inaccurate late payments or accounts showing you owe a balance that’s been paid in full.

Don’t Expect Immediate Results

Creditors have up to 30 days to investigate a reported error and file their determination with the credit bureaus. In your dispute, you can request that the creditor and/or credit bureau report the correction to anyone who received a copy of your credit report in the past six months.

If you don’t receive resolution after 30 days, elevate the dispute and ask the creditor for contact information to file an executive complaint. This is a formalized process that funnels complaints to corporate executives and/or can threaten legal action or concern about obvious inappropriate actions. “This is usually done in writing to an email or physical address and often gets attention,” says Nitzsche.

You can also file a complaint with the Consumer Financial Protection Bureau against the company that is incorrectly reporting the information and/or the credit bureau to ensure results.

Contacting the Better Business Bureau can also spark action. “This typically triggers an executive complaint at the company, which escalates the issue and can help resolve it,” says Nitzsche.

If you disagree with the results of a credit bureau’s investigation, Gallegos says you can ask the bureau to include a statement of dispute in your file and your future reports. In that statement you can explain your side of the story, outlining why you believe the information to be inaccurate and detailing your proof.

“Remember to keep copies of all correspondence related to the dispute,” says Gallegos. This will be helpful when presenting a personal argument to a loan servicer or provider.

And remember, negative items won’t haunt you forever. “Blemishes like late payments and past-due debt will fall off the credit report after seven years from the first delinquency,” says Nitzsche.

The Bottom Line

Regular review of your credit reports will stop any errors before they can keep you from getting a loan or an apartment or even a job. It's worth your time.

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