This Mistake Could Cost You Thousands

If you don't know about this mistake, you could potentially lose thousands of pounds.

Fans of Sesame Street's Big Bird will know: Everyone makes mistakes.

Of course, it's all very well for a man in a giant yellow chicken outfit to preach: "Don't get mad and don't get sad... mistakes are not so bad".

But if it's your bank which has made the mistake - and that mistake has a detrimental impact on your credit rating - it could cost you thousands of pounds.

This is because, as I explained in The Secret Way That Bank Keep Tabs On You, banks regularly share information about you and your credit record behind your back.

And following the credit crunch, the Fool has learned that some mortgage lenders and credit card providers are rejecting applications for credit because the applicant has a single black mark on their credit record.

So a single mistake by the bank (which may have occurred for a number of innocent reasons: because you were a victim of identity fraud, or an application was accidentally submitted twice) could potentially harm your ability to get a mortgage or any other form of credit at a low, ‘prime' rate in the future.

And this could cost you more than you think. Most sub-prime mortgage rates are around 2% higher than the cheapest rates for 'prime' borrowers with spotless credit records. Now, 2% might not seem a lot, but when you're borrowing large amounts, it can really add up. For example, if you borrowed the average Fool mortgage of £150,000 at a sub-prime rate instead of a prime rate, it would cost you an extra £2,200 a year.

And the worst part is, most lenders won't tell you their reasons for turning you down (as I recently found myself, when my application for a credit card was rejected).

That means a mistake could be sitting there on your file, right now, just waiting to cause havoc the next time you apply for credit.

Scary thought, isn't it?

Check Your Credit Report

In this uncertain economic environment, when a spotless credit rating is so important, it is a really good idea to check your credit report just to make sure everything is as it should be.

You could either buy a report from Equifax Credit Rating for £14.95, or you can sign up for a 30-free trial with Experian through The Motley Fool (this will allow you to access your report for free - but if you don't want to pay a monthly subscription charge, remember to cancel before the 30-day trial is over).

Correct Your Credit Report

If you do find there is a mistake on your report, there are a number of ways you can correct the error:

You can complain to your lender. Every lender should have a complaints procedure in place that will allow you to do this. Once you have done this, you will then have recourse to the Financial Ombudsman Service if it isn't sorted out. However, you have to wait until the bank has sent you a letter with its final response to your complaint, or 8 weeks have passed with no response.

You can contact a credit reference agency and ask them to contact the bank on your behalf and query the mistake.

You can add a 200-word statement to the credit report and explain the truth. This is called a ‘Notice of Correction'. You will need to contact a credit reference agency with the statement and ask them to put it in your report. This should cause any application you make to be referred by an automated computer check and passed on to a real live human being, who should be more sympathetic than a machine!

Best of all, you can do all of the above simultaneously if you want to.

In other words, if you see a mistake, don't let them get away with it! Get mad - and get it corrected!

More: How To Improve Your Credit Rating.