A class-action lawsuit against the three major credit bureaus made headlines when a federal appeals court threw out a proposed settlement, but more noteworthy is that the suit itself led to major improvements in how they generate consumer credit reports.

In the lawsuit, thousands of U.S. consumers allege that Equifax, Experian and TransUnion were issuing credit reports that dinged them for debts they had already discharged in bankruptcy. To address the problem, all three companies have made the necessary changes to their databases. American Banker

Whether we like it or not, we now live in a time where just about everything we do is monitored, compiled and sold off to who knows who.  Our medical history, driving records, where we go on the internet and most importantly, our credit information is all up for grabs.

Consumer credit reporting is a multi-billion dollar a year industry with Experian, TransUnion and Equifax being the big three players.  These three bureaus keep files on over 200 million America’s credit and financial status. And these files do not always contain accurate information on an individual’s credit history and are often times teeming with errors.

The slightest mistake on your consumer credit report can cost you money. These errors can increase the interest you end up paying on loans, preclude you from obtaining a mortgage or purchasing a car, getting that dream job or even getting a security clearance. Believe me, it’s not uncommon. A recent government study indicates as many as 40 million Americans have a mistake on their credit report. Twenty million have significant mistakes.

In an interview with CBS News Mike DeWine, Ohio Attorney General, said “The problem is not that they make mistakes. It’s they won’t fix the mistakes. It literally is like this– you know, guy behind the curtain in “The Wizard of Oz.” You really don’t know what he’s doing. It really is a secret operation that is so hard to crack.”

Getting an error fixed on your credit report really isn’t all that difficult; the difficult part is knowing that there is an error on your credit report in the first place.  Fortunately with the passing of the Dodd Frank Act on July 6th 2011, the Federal Reserve Board and the Federal Trade Commission issued final rules regarding credit score disclosure regulations.  Of these rules is one allowing consumers to obtain a free credit report each year, every 12 months.

Once you request and receive your credit report, from all three bureaus, you will be able to closely inspect your report to find any discrepancies.  If you happen to find any errors on your credit report, here are a few steps to take in order to assist you in correcting the errors:

ž   Request a fresh report directly from the credit bureaus.
Before you do anything else, order a fresh report from the credit reporting agencies. You’ll need this report to send in your next dispute and to keep on hand in case you later need to sue.

ž   Scour your report for errors large and small.
When you last checked your report and saw there was an error, you may have only noticed major errors, such as a judgment that doesn’t belong to you or a debt that you’re sure you repaid. However, look closely for other, smaller mistakes on your report, such as incorrect addresses or a slight misspelling of your name, say experts.

ž   Highlight the bad things on your report.
Make notes of all of the errors.  Photocopy the front page and photocopy the page with the error, then circle the error. If there are multiple errors on your report, put a number next to each error.  Doing it this way will help you refer to the errors when you write your dispute. Once you’ve marked up the report, make multiple copies. You’ll need them for your files, as well for your disputes.

ž   Write or type a dispute letter.
Type up, and then mail your dispute. Include as much information and evidence as you need to explain your case. Also, if you do wind up in court, you’ll be able to prove to the judge assigned to your case that you gave the credit bureaus enough information to properly investigate your dispute.

ž   Keep it simple.
The most effective dispute letters are often the easiest to read. Don’t try to cite legal arguments or use fancy words.

ž   Include evidence.
Attach whatever evidence you can find, backing up your dispute.
Include every bit of documentation and every bit of detail available. That way, the credit bureau can’t say that you didn’t give them enough information.

ž   Mail your dispute to the credit bureaus.
It’[s a good idea to send your dispute letter “return receipt requested” with a signature required to each of the credit bureaus that you are disputing.

ž   Don’t give up.
Don’t take no for an answer.  If you disputed the error and nothing happens, keep disputing it.  If still you have not gotten any satisfaction, it’s time to contact a lawyer.

When you dispute an error on your credit report, the credit reporting agency is required to contact the creditor and the creditor has the opportunity to verify the debt.  They have a “reasonable” amount of time (the credit reporting agencies) to verify the debt (or not).  If the debt is not verified in a reasonable amount of time, the debt must be removed from your report.

Don’t rely on the credit bureaus to keep an accurate record of your credit history, make sure you check your credit report, from all 3 agencies, at least once a year and dispute any errors you find immediately.

…Your financial future may depend on it.