Have Free Access to Credit by Having an Accurate Credit Report |
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Information maintained by
credit reporting agencies on consumers' credit-related experiences plays a
central role in US credit markets. Creditors consider such data a primary factor when they monitor the credit circumstances of current customers and evaluate the creditworthiness of prospective borrowers.
Analysts widely agree that the data enables the domestic consumer credit markets to function more efficiently and at lower cost than would otherwise be possible.
Despite the great benefits of the current system, some analysts have raised concerns about the accuracy, completeness, timeliness and consistency of consumer credit records and about the effects of data limitations on the availability and cost of credit in the credit report. These concerns have grown as creditors have begun to rely on credit history scores (statistical characterizations of creditworthiness based on credit record information) and less on labor-intensive reviews of the information in credit reports. Moreover, decision makers in areas unrelated to consumer credit, including employment screening and underwriting of property and casualty insurance, increasingly depend on credit records, as studies have shown that such records have predictive value. This analysis has revealed the breadth and depth of the information in credit reports. It also found, however, that key aspects of the data may be ambiguous, duplicative or incomplete and that such limitations have the potential to harm or to benefit consumers. Although the earlier analysis contributed to the debate about the quality of the information in credit records, it did not attempt to quantify the effects of data limitations on consumers' access to credit. The main reason for the lack of information is that conducting research on the effects of data limitations on access to credit report is complicated. Two factors account for the complexity. First, the effects vary depending on the overall composition of the affected individual's credit report. For example, a minor error in a credit report is likely to have little or no effect on access to credit for an individual with many reported account histories, but the same error may have a significant effect on access to credit for someone with only a few reported account histories. Second, assessments of the effects of data limitations require detailed knowledge of the model used to evaluate an individual's credit report and of the credit-risk factors that compose the model. In developing credit report scores, builders of credit scoring models consider a wide variety of summary factors drawn from credit records. In most cases, the factors are constructed by combining information from different items within an individual's credit record. These factors compose the key elements of credit models used to generate credit report scores. Although hundreds of factors may be created from credit records, those used in credit-scoring models are the ones proven statistically to be the most valid predictors of future credit performance. The factors and the weights assigned to each one can vary across evaluators and their different models, but the factors generally fall into four broad areas: payment history, consumer indebtedness, length of credit history, and the acquisition of new credit. A consumer credit report is the organized presentation of information about an individual's credit record that a credit reporting agency communicates to those requesting information about the credit history of an individual. It includes information on an individual's experiences with credit, leases, noncredit-related bills, collection agency actions, monetary-related public records, and inquiries about the individual's credit history. Credit reports, along with credit history scores derived from the records of credit reporting agencies, have long been considered the primary factors in credit evaluations and loan pricing decisions. They are also widely used to select individuals to contact for prescreened credit solicitations. More recently, credit reports and credit history scores have been used in identifying potential customers for property and casualty insurance and in underwriting and pricing such insurance. Credit reporting agencies collect information from reporters: creditors, governmental entities, collection agencies, and third-party intermediaries. They generally collect data every month and typically update the credit records within one to seven days after receiving new information. |
