It's easy to underestimate the impact of your credit report. Many consumers still believe that unless you're applying for a loan, your credit report is largely unimportant, but that's far from true. It sits in the shadows of your life residing on computers alongside of information about approximately 200 million Americans. These reports are generated and issued more than three billion times every year and sometimes without your knowledge. Information comes from more than 10,000 providers and credit reports are changed more than 36 billion times each year.

Here comes the part that you don't want to hear. You likely know that your report isn't one report. It's a collection of reports from different reporting agencies. To put it into perspective, let's say that you were to hire three private investigators to learn all they could about your crazy neighbor. Although all three will likely have much of the same basic information, some may uncover "facts" that others don't and some might provide you with information that is false. Maybe it happened because the investigator misread a report, confused the person with somebody else or any number of other variables out of your neighbor's control.

SEE: Consumer Credit Report: What's On It

That's how your credit report works and that's why the Consumer Financial Protection Bureau reports that up to 40% of all credit reports have errors. Get together with 10 of your friends and four of them likely have errors on their credit report. Those errors may not only increase the interest rates they pay on loans, they may pay higher insurance rates or even get rejected for a job they were hoping to land. Furthermore, because fixing errors on a credit report can be so time consuming, many consumers find it very difficult to bounce back from a credit score disaster.

Recently, the CFPB announced that it's going to begin keeping a close eye on more than 30 credit reporting agencies including the big three that you likely know: Experian, Transunion and Equifax.

Three Areas to Watch
As part of its effort, the CFPB plans to focus on three areas. First, it wants to make sure that the information that comes from mortgage lenders and debt collectors is accurate. Second, ensure that when your credit report is compiled and generated, it's free of errors. Third, if there is inaccurate information, it should be easier to dispute errors on credit reports.

The specifics of the monitoring haven't been released, but just as the Federal Government did with credit cards, the credit agencies will soon have a big brother watching.

SEE: How To Find A Credit Counselor

What Can You Do?
Let's not blame the credit agencies entirely. It's reasonable to ask them to cut down on the errors, but 200 million reports is a lot to manage. Consumers have to protect themselves by taking simple steps.

First, it is very important for you to check your credit report. You are entitled to a free copy of your credit report each year and it's imperative that you order all three. Take a close look at the contents. If you find something that appears to be inaccurate, investigate. If it truly is a mistake, contact the credit agency immediately. If you have an entry on your report that you're not proud of, but there's a reasonable explanation for it, you have the right to include that explanation on the report. Maybe you were injured and couldn't work, went through a divorce or suffered a layoff.

Finally, understand that it may take some time to get results, but don't back down if you know that the entry is a mistake.

The Bottom Line
Soon, consumers will have another advocate in their corner watching out for their best financial interests. The specifics are not yet known, but the fact that the CFPB is working on it is welcome news.

SEE: Improve Your Credit Score In 2012

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