In December 2012, the Consumer Financial Protection Bureau (CFPB) published a white paper entitled “Key Dimensions and Processes in the U.S. Credit Reporting System: A Review of How the Nation’s Largest Credit Bureaus Manage Consumer Data.” Below is a summary of the CFPB’s key findings of the three largest nationwide credit reporting agencies, or NCRAs, as they will be referenced from this point forward.
Experian, Equifax, and TransUnion
Collectively, the National Credit Reporting Agencies maintain credit files on over 200,000,000 adults and they receive information from approximately 10,000 data furnishers.
Furnishers of Credit Data
On a monthly basis, the NCRAs receive from furnishers information on over 1.3 billion consumer credit accounts or other trade lines. Furthermore, the 10 largest institutions furnishing credit information to each of the NCRAs account for more than half of all accounts in consumers’ credit files. Retail and network-branded revolving credit cards account for nearly 60 percent of all trade lines.
Quality Control of Credit Data
Before accepting information, the NCRAs perform background and quality control checks on would-be-furnishers. Most furnishers, and all new furnishers, provide consumer credit information electronically to one or more of the NCRAs using a standardized format called Metro 2 developed by the Consumer Data Industry Association (CDIA). When data files are received, the NCRAs perform quality checks prior to adding the data to credit files.
Organization of Credit Data
Upon receipt of data, it is organized via a “matching” process managed through unique data architectures. Matching is complicated by the absence of any objective, third party source of information, with complications arising from:
- Similarities in consumers’ names and addresses – particularly among family members.
- Limitations, colloquial variations, and inaccuracies in the personally identifying information provided by consumers and furnishers when consumers first apply for credit products.
Credit Data Inaccuracies
Credit data inaccuracies can occur when:
- Consumers provide inaccurate data when applying for a loan.
- The creditor who furnishes data to the credit bureau inputs consumer information to its systems inaccurately.
- The NCRAs match information about a consumer from a particular data furnisher to the wrong individual consumer’s file.
- There are errors or lack of identifying information in government records.
- Consumers are victims of identity fraud or identity theft.
Disputing Credit Data
Consumers have the right to obtain a copy of their credit files and to receive notice of adverse actions involving credit reports, enabling them to dispute potentially inaccurate credit data:
- It’s estimated that every year at least 40,000,000 consumers obtain a copy of their credit file from one or more of the NCRAs.
- Each year approximately 8 million consumers contact the NCRAs to initiate disputes on their credit reports.
- Of the 8 million contacts from consumers, there were between 32 and 38 million disputed items.
Collections – Every year, items reported by collection agencies have the highest dispute rates, averaging 1.1 percent of their total trade lines furnished. Of the disputes handled by the NCRAs, 40 percent of them can be linked to collections items.
eOscar – Since so many consumer disputes are received by the NCRAs each year, they are handling via an automated management system:
- eOSCAR automatically forwards consumer disputes to furnishers of the disputed data (with the exception of a small fraction of disputes handled by the NCRAs internally).
- One or two numeric codes indicate the nature of the dispute.
- About a quarter of disputes also include explanatory text.
- Documentation provided by consumers in support of their dispute is generally not forwarded on to furnishers.
- Furnishers are required to investigate the dispute and report back with findings to the NCRAs.
- 15 percent of disputes are resolved internally by the NCRAs with no involvement by data furnishers.
- 85 percent of disputes are forwarded to data furnishers through e-OSCAR.
Controversy – Critics suggest it is inappropriate and ineffective for furnishers of disputed data to verify its accuracy. After all, its their information from which the potentially inaccurate data originated. Thus, critics’ advocacy of a system in which the NCRAs monitor and manage furnisher practices.
While the measurement of credit report accuracy and the level and causes of inaccuracies present challenges, periodic measurement of credit report accuracy holds promise for establishing baseline accuracy levels and measuring improvements over time.