About 10 million consumers, through no fault of their own, have serious errors on their credit reports, raising troubling questions about people's ability to secure loans and the fairness of interest rates they're charged.
In the first study of its kind, the Federal Trade Commission looked at credit reports for 1,001 consumers obtained from the three major credit bureaus — Experian, Equifax and TransUnion.
It found that about a quarter of consumers had at least one "potentially material" error in at least one of the three reports. Such errors included the number of credit-card or mortgage payments a consumer was believed to have missed or the number of loans that were sent to collection agencies.
"We're talking about folks who could have gone into a better credit tier if these errors had been corrected," Paul Pautler, deputy director of the FTC's Bureau of Economics, told me.
These findings are outrageous enough. But they also highlight the shadowy nature of the credit reporting industry, a business with the power to make or break your creditworthiness without ever being required to obtain your permission to compile and sell files on your financial affairs.
And in the digital age, with thousands of corporate databases up for grabs, it's become all too easy for these companies to traffic in garbage information. Again, all without your approval.
"It's unconscionable that 40 million Americans have errors in their credit reports and that 10 million have errors grave enough to cause them to be denied or charged more for credit or insurance or even be denied a job," said Chi Chi Wu, staff attorney at the National Consumer Law Center.
"There needs to be serious and wholesale reform of the credit reporting industry," he said.
Will there be? I put that question to Pautler.
"That's above my pay grade," he replied.
I'm guessing the more than $2 million that Experian, Equifax and TransUnion spent on lobbying last year alone will have some sway over any crackdown on the industry. Political expenditures by the companies were compiled by the Center for Responsive Politics, a watchdog group.
Meantime, people like Deborah Carter of Huntington Beach will continue banging their heads against the credit reporting industry.
When her son recently received an unexpectedly high interest rate to refinance his mortgage, Carter, 58, delved into his credit files and discovered that both Equifax and Experian had lowered his credit score because of seemingly missed payments.
She said Equifax's files showed "recent delinquencies reported on accounts." Experian cited "too many delinquent accounts."
In fact, Carter said, her son had only one missed payment on a single loan six years ago. Yet when she tried to clear things up with Equifax and Experian, she got nowhere. Similarly, complaining to the FTC only produced an acknowledgment of her dispute.
"I've done everything I'm supposed to do as a consumer," Carter said, "and my son has the same credit score and the same inaccurate information."
So how did the credit reporting industry gain so much clout? To understand that, you have to go all the way back to 1898.
That's when a Tennessee grocer named Cator Woolford oversaw creation of a list of customers, including indications of their creditworthiness, for a local grocers' association. It didn't take long for other merchants to express interest in buying the list, and Woolford soon went into the credit reporting business full time.
By 1901, Woolford's Retail Credit Co. was also supplying data to the insurance industry. The company continued to grow over the years and to acquire rival businesses. In 1979, it changed its name to what we know today as Equifax.
TransUnion was born in 1968 as the holding company for Union Tank Car Co., which leased rail cars to other businesses. The company got into the credit reporting game a year later by acquiring the Credit Bureau of Cook County in Chicago, followed by the acquisition of other local credit bureaus nationwide.
TRW formed a credit reporting unit in the 1960s, and it became one of the nation's biggest such firms. It merged in 1996 with Britain's leading credit reporting company under the name Experian, which now is based in Dublin, Ireland.
A 2002 report on the credit reporting industry by the Federal Reserve Bank of Philadelphia noted that consumer files were relatively primitive in the pre-computer era. Along with reports of any missed payments, a file might also include newspaper clippings about a person's arrest, marriage or promotion.
That changed in the 1970s as computers arrived on the scene and as corporate databases proliferated like weeds. This prompted passage of the Fair Credit Reporting Act, which laid down the first regulations for the growing industry.