The credit bureau is an independent repository of credit details and it is only as good as the lender doing the report.
Does the credit bureau make mistakes? Yes, system is only as accurate as the human who is inputting the data. The problem with erroneous credit bureau reports is almost always from the lender.
Lenders provide a journal feed to the credit bureau on a monthly basis. I have experienced a couple of instances where lenders have done monumental computer switches and files get messed up in the system. For example, when banks make the computer conversions old customer files are sometimes not removed, because the credit bureau computer is being fed new data from a new system.
Outside of the computer glitches, there are collection agencies and service providers who can simply file a collection, based on their own opinion of what they believe is owed. Once the collection is uploaded to the credit bureau the burden of proof shifts to the customer to prove that the money is not owed (guilty until proven otherwise). In my opinion there needs to be a review of a collection before it can be placed on the individual's file, because it is far to easy to claim money is owed and simply having it ruin somebody's credit.
Many collection reports are correct. They are from past due utility bills, where people thought their spouse or room-mate paid it. But there are some from scams and ill-informed account collectors who simply use a collection on the bureau as a way to leverage their payment (owed or not).
I have interviewed an individual who found a Collection Report on his file from a former service provider. The bill was from a home security company who after 9 years of payments were being asked to stop the service. The home security company demanded 6 months penalty. When this gentleman asked for a copy of the contract to show him why he owed the money, they never provided him with any proof. The service provider claims they were owed money, so they sent the file to an aggressive collection agency who filed the a report of an unpaid bill. The collection agent told him that he could either hire a lawyer for $5000 or pay the bill. Simply paying off the collection was this individuals way of dealing with the incovenience (it was $240), but the problem did not go away. That "paid collection" would normally stay on the visible credit report for 7 years (from the date of payment) and it will gravely affect his Beacon score for 2 years. Since our conversation, this gentleman has interviewed a lawyer to review the contract.
What can you do to prevent the damage caused by this kind of activity? The first thing you need to do is review your personal credit bureau annually. http://www.consumer.equifax.ca/home/en_ca and http://www.transunion.ca/ , because both credit bureaus report to most banks. If you find anything that does not seem correct, you must contact the lender and the credit bureaus to correct the report. It will take a letter from the lender to the credit bureaus to verify that information is incorrect. If the lender or collect agent will not willingly correct the error, it is now up to you to decide if it is time to consult a lawyer. The damage done by erroneous credit reports can be the difference between qualifying for a loan/mortgage or not.
During the process of fixing an incorrect report, you can provide the credit bureaus with a "narative" that will be posted on your credit bureau file. It would be a brief explanation of your side of the story. That way, any future lenders could read that the file is under review and it may give you a fair chance at the credit you are applying for. Most lenders will take a look at the larger picture. If all of your creditors have been paid on time and you have a stable job with proven income, the collection will appear to be an anomoly.
If the collection on the credit bureau was caused by you not making a payment because the car you bought broke down, so you purposely didn't pay the car loan company... don't expect the poor credit rating on your bureau to change. You are responsible to pay your bills and taking it out on your car loan company is not the correct way to justify missing payments. You will only hurt your personal credit. Deal with credit problems directly and get any promises from the lender, in writing.
PS. Good news for the customer referred to in this article. He has just been advised that Equifax has reviewed his evidence and is removing the incorrect judgement from his credit report. He will now qualify for a mortgage at a deep discount rate.