Whistleblower: Tiny credit dings made larger in tight lending market

About six months ago, Laura Dreon and her husband signed up for Internet service with Frontier Communications. They canceled it soon after and went with a different provider. But Frontier would not go away.

Dreon was told to expect a prorated bill for $24.95, but what she didn't expect was that a glitch in Frontier's billing system would eventually lead to a bad mark on her credit reports. Frontier erroneously reported Dreon to two credit bureaus as being delinquent on her account, adding her to the millions of consumers with potentially damaging mistakes on their official credit record.

Dreon believes the mistake is responsible for scuttling the couple's chance to refinance their Waconia home in May, when interest rates were most favorable.

"We would have saved about $600 a month," Dreon said.

In the first month after canceling, instead of a bill for $24.95, Dreon received bills for $65.43 each for two separate accounts.

Dreon called Frontier immediately, she said, and she was assured there was no problem. She paid the $24.95 but the double bills kept arriving. And she called them on it every time, she said. "The date that I received the bills is the date I called them every single time."

As early as February, Dreon started getting letters stating "Please be advised that your account is seriously past due," accompanied by language related to potentially reporting her to a collection agency or credit bureaus.

Frontier acknowledges that it made a mistake that may have affected Dreon's loan application.

"That second account should not have been set up," Dana Berkes, Frontier Communications spokeswoman said.

"And we apologized very much and worked really hard and fast to fix it so she could take that documentation to her mortgage company to alleviate that $65 nonpayment charge on her credit," Berkes said. Frontier alerted the credit bureaus to the error in late May.

What role the Frontier misstep played is unclear. The bank, Brainerd Savings and Loan, was unable to confirm or deny whether it was a factor.

"A single derogatory item or an account in dispute would not necessarily mean an automatic denial," according to a statement by Catherine Meyer, executive vice president for Brainerd Savings.

The denial given to Dreon was based on two factors, "Delinquent Past or Present Credit Obligations with Others" and "Credit score too low."

Other last-minute factors may have influenced the bank's decision. For instance, Dreon's daughter was applying for financial aid and every time a student-loan lender checked on Dreon's credit, the score went down 10 points, she said.

Experts advise consumers to keep financial activity such as applications for credit to a minimum when about to close on a mortgage, in order to avoid last-minute surprises on credit reports.

About one in five consumers have errors in their credit reports, according to study findings presented to Congress by the Federal Trade Commission in December.

Of 1,001 study participants, 21 percent found at least one confirmed "material error" on their reports. After 572 credit reports were disputed, the bureaus modified 399 of them and 65 had a score change big enough to improve their credit­worthiness.

Dreon may not have to wait too much longer for her credit reports to be fixed. The bureaus have 30 days to complete their investigations and report back to consumers, according to Norm Magnuson, vice president of public affairs for the Consumer Data Industry Association.

If a bureau will not correct the error, unlikely in this case since Frontier has accepted the blame, Dreon could counteract the bad mark with a short statement attached to the credit report as long as the disputed item remains there.