Susan Crandall thought she had stellar credit, until computers at one of the nation's powerful credit reporting agencies decided she had serious money troubles.
Crandall lived 50 miles from a woman who had filed for bankruptcy. They had similar names. Their street addresses were nearly identical. But they lived in different towns, with different birth dates, different middle names and different Social Security numbers.
For the credit reporting agency, however, it was close enough for a match. The agency's computers took the two women for the same person, combined their credit histories and falsely branded Crandall a deadbeat and a terrible credit risk - just as she was trying to buy a house.
And every step of the way, the system worked exactly as it was designed to.
A four-month investigation by The Courant has found that the nation's credit reporting business is built on a system so seriously flawed that costly errors are inevitable. A much-heralded congressional reform effort seven years ago has done little to repair the broken system or to hold credit bureaus accountable, the investigation found.
It is a system that forces hundreds of thousands of consumers to overpay for mortgages, credit cards and even car and property insurance. And it rewards the industry for its own mistakes, delivering millions in profits from selling credit reports to nervous consumers.
Errors seep into the system at every level.
Banks, credit card companies and department stores might send incorrect or outdated account information to the massive credit bureaus. When bureaus assemble credit reports, they rely on inexact computer matches that can easily mix consumers' records.
"Too many credit reports are a ticking time bomb of inaccurate information," said Ed Mierzwinski, consumer program director at the U.S. Public Interest Research Group in Washington, D.C. "Consumers pay the price for the mistakes of the credit bureaus."
That price can be high. Beyond the thousands who are cut off from credit completely, millions more risk drastically overpaying for loans without knowing it.
A borrower wrongly saddled with a blemished credit report could be forced to pay a mortgage nearly 3 percentage points higher than a borrower with a clean credit record. Over the life of a 30-year, $150,000 mortgage, that would grow to a $100,000 mistake.
And attempting to correct those mistakes can put consumers in a frustrating maze of telephone call centers, where they are at the mercy of low-paid clerks, some burdened by a quota system that requires them to handle a grueling 10 complaints every hour.
The credit reporting industry is dominated by three behemoths - Equifax, Experian and TransUnion - which churn out 2 million credit reports a day.
The industry has been under assault from legislators and consumer advocates for years. But the credit bureaus say their systems are the envy of the world, saving American consumers billions of dollars in interest charges every year by allowing lenders to better evaluate risk.
They acknowledge that their matching system isn't perfect, but say it reflects a balance between providing a complete picture of a consumer's payment history and avoiding a credit report that merges the histories of two consumers.
The bureaus also argue that they have spent millions to refine their computer programs and that they remain committed to eliminating errors. Anything else, they say, would cost them the confidence of the credit industry - and ultimately, sales.
"This is our lifeblood, this is our business, this is what we do, and this is what we've been doing for 104 years," said John Ford, chief privacy officer at Atlanta-based Equifax. "We're very, very concerned about the accuracy and reliability of our database."
Don't tell that to Melinda Hightower.
Hightower, of Greenwich, was cut off from her student loans last year and had to abandon graduate school after a credit bureau mistakenly reported she was delinquent on her car payments.
But that was only the beginning.
When Hightower requested her TransUnion credit report, she found her file contaminated by credit information from a shocking collection of strangers, with a variety of birth dates and addresses.
"Someone was born in 1919," said Hightower, 23. "There were addresses from Colorado, Minnesota, all up and down the West Coast, and I've only resided on the East Coast. And even accounts that weren't mine."
What went wrong?
To understand, throw away the image of credit reports on paper neatly tucked away in filing cabinets or even stored in electronic computer files at the credit bureaus.
Instead, imagine billions of bits of bill-paying history - both good and bad - warehoused in massive electronic databases.
Each piece of the puzzle - the Visa account, the mortgage on a house - has some combination of personal information attached to it: name, address, date of birth, Social Security number.
When a consumer applies for a loan, the lender requests a report by submitting a variety of identifying information. High-speed computer search programs troll the databases, looking for accounts and loans with the same information.
The programs, however, don't require an exact match. So, if two people have similar names and Social Security numbers that differ by a few digits, that can be considered a match, even if other personal information is completely different.
The credit bureaus' rationale is that consumers are inconsistent in the names they use when applying for credit - using married and maiden names or adding and dropping the "Jr." and "Sr." generation titles.
And errors made by clerks may explain a slight variation in Social Security number or birth date.
Make the matches too exact, the bureaus say, and computer programs might miss accounts with damaging information about a borrower's finances, putting lenders in a potentially risky position.
But with 200 million Americans in the database, the surprisingly loose matching system can spell big trouble for a consumer's credit report.
That's what happened when computers compiled a report on Crandall, who now owns a bed and breakfast in Coventry. In 1999, Crandall, whose married name was Susan Martin - lived in Westfield, Mass., at 43 Mountain View St.
An hour's drive away, at 43 Mountainview Drive in Pittsfield, Mass., lived another Susan Martin, who had gone bankrupt.
To the computers, the two women were the same Susan Martin.
One of the most frequent mistakes in credit reporting is mixing up a father and son with the same name.
"If anyone is not certain whether to name their son after them, this is the reason not to do that," said Daniel S. Blinn, a consumer lawyer in Rocky Hill who handles credit report cases.
But under the bureaus' matching systems, the names don't have to be close at all.
Myra S. Coleman, a Mississippi woman, sued after TransUnion confused her with a California woman named Maria Gaitan, whose name became associated with Coleman's Social Security number.
At the trial, an official with the credit bureau said that people change their last name through marriage or divorce and that the sequence of letters in "Myra" was similar to "Maria."
"That's really kind of absurd," said Coleman's attorney, Sylvia A. Goldsmith of Sandusky, Ohio. "Social Security numbers get stolen. Social Security numbers get typed in wrong. If you're going on just a Social Security number and a partial match on the first name, you can really wreak havoc on someone."
How close is close enough when computers are looking for a match? The agencies won't say, explaining that they have spent millions on their programs to give them a competitive edge.
"The specific details of this matching system, therefore, are part of Experian's 'Crown Jewels' and are not disclosed in lawsuits or to any government agency," wrote David A. Browne, a compliance manager for Experian, in a 2001 federal lawsuit in Hartford.
Experian officials declined to be interviewed for this story.
The credit bureaus are only part of the problem, critics say.
Banks, credit card companies and department stores sometimes supply inaccurate information to the credit bureaus, painting a false picture of a consumer's bill-paying history.
One common error involves the duplication of the same debt, which can leave the false perception that the borrower owes too much money. This often occurs with the sale or transfer of a mortgage.
Ruth Koontz, a former credit official at the now-defunct Montgomery Ward department store, said that once a mortgage is sold, the balance on the original loan should go to zero.
"The problem is that the balance stays there," said Koontz, who now helps consumers fix errors on their credit reports. "You can end up with multiple references [for the same loan] that still have balances."
A frustrating fight
For many consumers, losing out on the best rates or being cut off from credit is just the beginning of their troubles with the credit reporting system.
What follows is often a frustrating - and sometimes fruitless - fight with the bureaus and creditors to make corrections.
John Cook has been wrangling for two years to get an error corrected on his credit report so he could refinance his house in Windsor. Cook's file was combined with another John Cook who had defaulted on a loan.
"It's an amazing finger-pointing game," said Cook, who could have saved more than $5,000 in mortgage interest by refinancing. "And there's nothing the average Joe can do about it."
Neil F. Quinlan Sr. of Niantic learned that the hard way, after his credit file was mixed in with that of his son, Neil Jr. Fixing it, he said, was a nightmare.
"My son's got a different Social Security number. That should be a no-brainer. It should take 15 minutes to fix." Instead, he said, it required months of frustrating calls and letters to the credit bureaus.
When consumers telephone the credit bureaus, some step into a pressure-cooker environment.
Clerks at TransUnion earning as little as $9.60 an hour are expected to handle 10 consumer complaints an hour, according to an October 2001 court deposition obtained by The Courant.
And consumers, on average, complain about three accounts, leaving the clerks just two minutes to understand each dispute and send a request to the creditor for an investigation.
At that pace, critics say, the bureaus routinely violate the federal law requiring a thorough investigation when consumers complain about their credit reports.
By law, credit bureaus must verify disputed items with the original creditor, forwarding "all relevant information" they receive from the consumer. Instead, detailed letters from consumers are reduced to numerical codes that translate to one- or two-word explanations.
"What they do is they just punch a number on their computer, because that's a code number," said Mike Baxter, a Portland, Ore., lawyer who specializes in credit cases. "Maybe push 5, which happens to be 'not mine' or something. And it's quick and dirty and easy. But it does not adequately relay the dispute to the creditor."
The credit industry argues that the codes are sufficient to illuminate even the most complex complaints.
"We can do a very, very, very good job of capturing what the consumer's disputing and convey these kinds of subtleties," said Stuart Pratt, president of the Credit Data Industry Association, a trade group. "So the lender really does have in front of itself, the right, relevant information upon which it must conduct its reinvestigation."
Sometimes, that reinvestigation is done entirely by computers.
When Luis Jaramillo of Philadelphia reviewed his TransUnion credit report a few years ago, he found several accounts that weren't his, including a credit card from National City Bank that was issued when he was 11 years old, according to court records.
Jaramillo complained to Trans-Union, which sent National City a computerized request to investigate. A computer at National City scanned the bank's records, matched Jaramillo's name, and told the computer at Trans-Union to keep the obviously erroneous account on Jaramillo's report.
Officials at TransUnion refused repeated requests to be interviewed for this story.
Even when computers aren't handling complaints, critics say creditors don't get much higher marks for dealing with customer disputes.
When the bureau sends a complaint to the creditor, the creditor typically compares it with customer account records.
The problem, critics say, is that creditors don't investigate to see if their own information is correct.
"They say, 'Yep. Everything verifies,'" Baxter said. "We sent in accurate information, so we verify it."
Fleet Bank - one of the nation's 10 largest banks and the biggest in Connecticut - said its credit card unit assigns a staff member to research each dispute that comes from the bureaus. But Fleet acknowledges it does not contact the consumer as part of the process.
"When the complaint comes from the credit bureau, the dispute is between the consumer and the credit bureau," said Deborah Pulver, a spokeswoman for Fleet's credit card unit.
Fleet does work with the consumer when the customer contacts Fleet directly, Pulver said.
But Crandall, the Coventry woman who had another woman's bankruptcy filing wrongly listed in her credit report, said she had a tough time finding someone at Fleet to help her.
In 1999, Crandall tried to get letters from the other woman's creditors, after the bureaus said that was the only way she could prove that the bankruptcy wasn't hers.
Crandall said she was bounced around Fleet. She visited or called several local offices in Massachusetts. Then, she sent letters and documents to a Fleet office in South Carolina.
"But no one wanted to listen to me," Crandall said.
She called the president's office in Boston and laced into a secretary. Finally, Crandall reached a customer service center in Rhode Island and got her problem resolved.
Fleet said Crandall should have been directed to the service center right away, but couldn't explain why that didn't happen.
More is better
In a marketplace shared by three massive credit bureaus, critics argue the bureaus have a financial incentive to include more in a credit report, even at the expense of accuracy, to stand out from their competitors.
"There are three credit reporting companies. If you've got one that's got 10 credit items, one that's got 15 and one that's got 20, which one are you going to go with?" asks Baxter. "People say, 'Well, we better go with the one with 20, because they do a more thorough job.'"
Critics say the bureaus would rather have more information than risk even one damaging account left off.
The approach helps credit bureaus to cover themselves with lenders, said Evan Hendrickson, editor of the Privacy Times newsletter in Washington, D.C., and a frequent expert witness for those suing the bureaus over credit report errors.
Lenders might stop buying reports if the credit bureaus miss negative information about a potential borrower, he said.
Ironically, consumers are becoming profit centers as the agencies push sales of individual credit reports to consumers.
"The companies encourage people to see what is exactly included in their credit report," said Scott H. Kessler, an analyst at Standard & Poor's in New York. "And knowing about what is in your credit report can be extremely important for your life, and what you can do."
Last year, Equifax collected $39 million in fees from consumers, nearly double the amount from a year earlier, although still less than 4 percent of total revenue.
"By doing a bad job, they have created a whole new market," said Quinlan, of Niantic, who said he had so much trouble dealing with credit bureaus that he no longer uses credit.
Equifax's Ford argues that consumer interest in credit reports is linked more to worries about identity theft, rather than a concern about errors.
"We are not in the business of exploiting consumers," Ford said.