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

Related Articles
  1. Credit & Loans

    Your Credit Score: More Important Than You Know

    Credit scores affect key aspects of your personal and professional life. Knowing your score and managing your credit input can make a big difference.
  2. Credit & Loans

    Bad Credit? You Can Still Get a Home Equity Loan

    If your credit history is less than stellar and you need cash, you may be able to get financing – but it will come at a price.
  3. Credit & Loans

    Does a Lost or Stolen Credit Card Hurt Your Credit Score?

    Learn the ways in which a lost or stolen credit card can hurt your credit, and understand the steps you can take to protect yourself if this happens.
  4. Credit & Loans

    Refinancing vs. a Home-Equity Loan: How to Decide

    If you want to pay off debt, make home improvements or just get a better interest rate, you need to know exactly what these terms mean.
  5. Credit & Loans

    Millennials Guide: How to Pick the Right Mortgage

    Here’s help in finding the perfect, affordable loan for that home you have been dreaming about.
  6. Economics

    The Origins of the Puerto Rican Debt Crisis

    Learn why heavy bond issuance, economic decline, oppressive social spending and a declining population combined to bring about Puerto Rico's debt crisis.
  7. Credit & Loans

    How Regulations Protect Reverse Mortgage Borrowers

    They're complex animals, which is why there are government guidelines in place to protect borrowers.
  8. Economics

    What Happens in a Default?

    Borrowers are in default when they don’t honor a debt, whether their failure is intentional or not.
  9. Credit & Loans

    Millennials Guide: Buying Your First House

    Millennial homebuyers need to research a lot of things, such as how much to pay, down payments, PMI, FHA loans and special programs for first-time buyers.
  10. Budgeting

    The 7 Best Ways to Get Out of Debt

    Obtain information on how to put together and execute a plan to get out of debt, including the various steps and methods people use to become debt-free.
  1. Will my credit score suffer from debt consolidation or refinancing?

    You have several options for reducing your debt burden. You can enroll in a professional debt management plan, or consider ... Read Full Answer >>
  2. Can I file for bankruptcy more than once?

    Filing bankruptcy is never a simple decision, but sometimes it is the best thing you can do in your current financial situation. ... Read Full Answer >>
  3. Does consumer protection cover my debts?

    The most impactful consumer protection laws and regulations in the United States are overseen by the Federal Trade Commission ... Read Full Answer >>
  4. Why would someone change their Social Security number?

    In general, the Social Security Administration, or SSA, does not encourage citizens to change their Social Security numbers, ... Read Full Answer >>
  5. What are some of the major regulatory agencies responsible for overseeing financial ...

    There are a number of agencies assigned to regulate and oversee financial institutions and financial markets, including the ... Read Full Answer >>
  6. What types of liens are seen as good and which are bad for my credit?

    Creditors that allow purchases to be made through financing often require property to be pledged against a credit account; ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!