Battling the Credit Bureaus

He didn't have a choice. Because of a serious mistake in his credit report, Hendrick's credit score was 445 out of a possible 850: a score low enough that most lenders would refuse to grant him any credit at all. "I had to pull strings with the banks I'm associated with to get myself a car loan," he explains.

The culprit: a tax lien that Experian, one of the three major credit reporting bureaus, incorrectly listed as unpaid. Over a three-year period, Hendrick disputed the error numerous times, sending the bureau the IRS-issued certificate of discharge. He also pointed out that the fact that he sold his house in 2002 was proof that the tax lien, which was attached to the mortgage, had been satisfied. "It's kind of a no-brainer," he says. "When you sell a piece of property, you have to satisfy any liens or judgments on it." Much to his frustration, Experian continued to list the lien as unpaid, citing courthouse documents. (He found out that the certificate of discharge never made its way to the public record, so his file wasn't updated.)

Two-Digit Codes
When it comes to disputing errors in your credit report, "no-brainers" don't matter: The process is entirely automated. In fact, consumers are often forced to take the credit bureaus to court so they can have their case heard by a human being, explains Evan Hendricks, author of "Credit Scores and Credit Reports." "It gets very frustrating when people have genuine disputes and do everything they're supposed to do and can't do anything to correct it," he says.

Here's how it works: When consumers file a dispute with the credit bureau, they are asked to describe the error, and can opt to send any supporting paperwork or information separately. The bureaus then conduct an investigation, which basically involves notifying the creditor about the disputed information so the creditor can confirm whether it's wrong. Problem is, the bureaus report errors by choosing from a list of two-digit codes that describe the most common types of complaints, such as "account not his/hers" or "claims account closed." That, consumer advocates say, may solve some problems. But it doesn't solve those that fall outside the box.

"They try to automate things to make it cheaper, but in the process they lose a lot of detail," says Chi Chi Wu, staff attorney, National Consumer Law Center. "People send these long letters that explain what happens, a lot of documentation, and all of that gets reduced to two-digit codes which the agency sends to the lender, the furnisher of the information." (A TransUnion spokesman says its practice is to scan the documents and include a link in the consumer's credit file, so it can be accessible to the creditors who pull the consumer's file, while Experian said it copies and mails the supporting documentation to the creditor. Equifax did not return our calls for comment.)

The credit bureaus, on their part, say the automation has increased the speed by which some problems can be resolved. But "for the subgroup of people for whom it doesn't work, it causes great harm," says Rob Treinen, an attorney with Feferman & Warren in Albuquerque, N.M.

Hendrick, the finance director, says it took complaining to the FTC and the Florida Attorney General's office to get his problem heard. Eventually, "someone really, really high up [at Experian] actually took the time to listen to me," he says. Since the error was corrected in December 2005, his credit score has increased to 677, his new car loan carries a favorable 6.24%, and in March he bought a new house with a 6.5% mortgage.