Agreeing to accept a new credit card in order to save an extra 10% or 20% at checkout can be mighty tempting.
But, if you’re not careful, agreeing to take that card can cost you a lot more than the money you saved on your purchases.
That’s because credit card history makes up nearly 60% of the information on the average American’s credit report — way out of proportion to the much larger debts most of us have.
That’s one of the findings of a new study on the Big Three credit reporting companies by the federal Consumer Financial Protection Bureau.
The CFPB examined data from 2011 submitted by TransUnion, Equifax and Experian, which each have more than 200 million credit files on U.S. consumers and dominate the credit reporting industry.
The credit bureaus then use those files to compute your credit score, that three-digit number that plays a huge role in your ability to get credit and the interest rate you will pay for it.
The CFPB found that 40% of the information the credit bureaus get comes from general purpose bank credit cards, meaning Visa, MasterCard, American Express and Discover. Another 18% comes from retail store cards.
Only 7% of the information comes from mortgage lenders or servicers, while just 4% comes from auto lenders.
It also found that most of the information provided to the credit reporting companies comes from a few large companies, namely the biggest banks.
One of the most unsettling things the CFPB found is that only about 44 million consumers, or about one in five with a credit history, bother to check their credit report.
Checking your credit report can help you discover errors that may hurt your creditworthiness unless you dispute them and get them fixed. It can also help you spot identity theft.
According to the U.S. Public Interest Research Group, about a quarter of all credit reports contain serious errors.
“The most effective way for consumers to identify errors in their reports is to obtain copies of them and review them,” CFPB director Richard Cordray says. “If consumers are not checking their reports, these errors can persist and pop up when a consumer can least afford them, blocking them for borrowing money for a larger purchase or causing them to pay a higher rate of interest than they should.”
Yet getting a credit report is easy — and free.
Under federal law, consumers are entitled to a free credit report once a year from each of the Big Three credit reporting companies, or three free reports per year. The reports can be obtained at www.annualcreditreport.com.
The CFPB also found that the credit bureaus resolve only about 15% of disputed items themselves, with the remaining 85% passed on to the furnishers. That means the documentation consumers mail in to support their cases may not be getting passed on to the data furnishers for them to properly investigate their claims and report back to the credit bureau.
Debt collection items generate the highest rate of disputes.
During the period studied, consumers disputed more than 32 million items in their credit files, with nearly 40% of the disputes related to debt in collections. Indeed, debt in collections is five times more likely to be disputed than mortgage information, the agency said.
If you have a complaint about an error on your credit report, you can now file a complaint directly with the CFPB, although the agency says you should first try to work out the problem with the credit bureau directly.