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According to a recent government report, most credit reports don't contain serious errors, and most people who spot mistakes on their reports are able to get them fixed.

So why worry? Well, two reasons:

Some of those errors are serious enough to cause you to pay more for loans and insurance. That's why you need to check your credit reports annually, as too few people do.

Not all errors are easily fixed, and the credit bureaus' automated dispute investigation system can leave you hellishly stranded. There's often no human being at the bureaus who can help you -- and that's a serious problem.

The Federal Trade Commission's recent study of credit bureaus and a December 2012 report by the Consumer Financial Protection Bureau (.pdf file) shine a spotlight on a flawed system that's wielding increasing power over our lives.

Credit bureau information is used not just by lenders to evaluate loan applicants and set interest rates. It's also used by insurers to set premiums, by landlords to grant rentals and by employers to help determine whom to hire, promote and fire.

The FTC report showed that as many as 50 million Americans have errors on their credit reports; for 10 million, those errors could be depressing their credit scores significantly. Yet the CFPB report estimated that only 22% of U.S. adults who have credit reports actually looked at them last year. (If you haven't checked yours, go to AnnualCreditReport.com to do so. Don't bother with "free credit score" or other look-alike sites, some of which are operated by credit bureaus but are not the free federally mandated site.)

Liz Weston

Getting bad information off your credit files can be as easy as clicking the "dispute" buttons provided with your online reports. That's what Ann Dieter of Chicago did when she found six department store accounts that had been closed showing as open 10 years later.

"I got them all removed," she wrote on my Facebook page.

Ashley Cortese Fraschilla of Philadelphia had a very different experience. Her attempt to resolve an error got nowhere.

"There was a negative account that was not mine that was associated with me somehow," Fraschilla wrote. "I disputed it and later I get an email that basically said that whoever the creditor was said it was real, so it was staying and there wasn't really anything else that I could do about it."

Fraschilla's experience illustrates a huge weakness of the credit report system: Credit bureaus typically defer to what the lender or other "data furnisher" says. If a creditor insists on reporting an error, there's no one at the credit bureaus who will intervene.

Sometimes just figuring out what the problem is can be a challenge. Judy Thomas of Ohio, who was interviewed by "60 Minutes," couldn't refinance her home or get a car loan despite having no blemishes on her credit reports that she could see.

The trouble, it turns out, is that credit reports supplied to consumers can be very different from the ones companies see. In Judy Thomas' case, the reports lenders were seeing mixed her information with that of one Judith Kendall.

Thomas said she discovered the problem only when a loan officer left a file on his desk unattended and she saw the other woman's information mixed in with hers. Thomas told "60 Minutes" she sent the bureaus hundreds of letters, including some from the other woman's creditors asserting the debts weren't hers.

Those documents highlight another problem: You can supply proof that you're right, but there’s no guarantee anyone will ever see it.

The federal Fair Credit Reporting Act requires that the credit bureaus "review and consider all relevant information submitted by the consumer" and forward to the creditor "all relevant information that the (credit bureaus) received from the consumer."

Consumer advocates complain the bureaus often fail to do either. Instead, disputes are reduced to one- or two-digit codes and forwarded electronically to the creditors. The electronic system that the bureaus use, called e-OSCAR, doesn't allow attachments.

Now that you understand the problems, here are some solutions:

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1. Credit bureaus need to conduct real investigations.

That doesn't mean the bureaus have to open a file on every frivolous dispute. It does mean a human being should review and forward to data furnishers documentation supplied by consumers in disputes, as required by law. A human being should also review and evaluate the data provider's response to the dispute.

2. Lenders and other data providers should respond in detail to disputes.

The companies reporting credit data to the bureaus need to do more than just look at their own systems to verify a debt exists. They should be reviewing any documentation supplied by the consumer and responding specifically to the consumer's complaint. If the furnisher has proof the consumer is wrong, that should be supplied to the credit bureaus.

3. Credit bureaus should have an appeals process.

If a creditor insists on reporting incorrect information, the bureaus should do more than shrug their shoulders. An independent third party should review the investigations, and credit bureaus should have ombudsmen to ensure consumer rights are being respected.

4. If your credit is being used against you, you should see exactly what the company passing judgment on you is seeing.

When the bureaus compile reports for lenders, they often use looser criteria of what to include than when someone requests his or her own report. Rather than just giving you the right to a free credit report after an adverse credit action, the law should require that you be given the same ones the lender, landlord, insurance company or employer actually used. In some cases, that's the only way to find out if your reports are being mixed with someone else's.

5. Heftier fines need to be levied for violations of the Fair Credit Reporting Act.

Consumer advocates will tell you the bureaus and lenders don't have much incentive to delve deeply into consumer disputes. Real investigations would be expensive, and few consumers are willing or able to file lawsuits over persistent errors. So the bureaus and the lenders don't face much economic cost for not taking disputes too seriously. Change the economic incentives, and they just might.

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Liz Weston is the Web's most-read personal-finance writer. She is the author of several books, most recently "The 10 Commandments of Money: Survive and Thrive in the New Economy" (find it on Bing). Weston's award-winning columns appear every Monday and Thursday, exclusively on MSN Money. Join the conversation and send in your financial questions on Liz Weston's Facebook fan page.

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