Credit Score

New Study Examines Reliability of Credit Reports

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Given the important role credit plays in most people’s daily lives and its impact on the U.S. economy, many entities (regulators, lenders, consumers, etc.) have a vested interest in better understanding the quality of credit bureau data.

Many different studies and research projects have sought to address questions regarding the accuracy of credit bureau reporting, the dispute resolution process, and the resulting impact on consumers.  Depending on the entity conducting the research, the research objectives, approach and overall methodology, the results are quite varied.

Recently, non-profit organization PERC (The Policy and Economic Research Council) released findings on the accuracy and quality of data collected and maintained by Equifax, Experian and TransUnion. Their research found that, in general, the information on credit reports is of high quality, and if inaccuracies were found and worked through the dispute process, there was little likelihood they would have an adverse impact on consumers.

[Article: Credit Bureau Scores Aren't the Only Important Ones]

Highlights from the research:

  • 19.2% of the credit reports examined by consumers were found to contain potentially inaccurate information. However, almost one-half of these related to inaccurate header information (incorrect name of employer or misspelled street name, etc.) — information that has absolutely no effect on credit bureau scores.
  • Less than 1% of all tradelines (the data elements that do factor into a credit score, including credit accounts, collections and public records) contained information that was disputed by the research participants.
  • Only .93% of all the credit reports examined had one or more disputes that resulted in a credit score increase of 25 points or greater.  Some of the resolved disputes had no affect on score or even resulted in a score decrease.
  • An average of .5% of reviewed credit reports had modifications resulting in a credit score increase that placed the consumer in a high credit score tier where they would have likely received more favorable terms (lower interest rate for example).
  • 95% of disputing participants were satisfied with the outcomes of their disputes.

To be honest, these findings did not surprise me.  First, the majority of information that is material to a credit decision is reported accurately for most consumers.  At the same time, it is inevitable that there will be some degree of errors within a voluntary data infrastructure as large and complex as the US consumer credit reporting system.  Thirdly, there is a workable process in place that allows consumers to check the information for accuracy and get the verifiable inaccurate data reported correctly.

However, I also feel strongly there is always opportunity for improvements.  These types of studies are a positive undertaking for all the entities involved (the credit reporting agencies, score vendors, regulators, legislators, consumer advocacy groups and consumers) as the findings can be used to increase awareness of the importance and impact of accurate reporting, as well as to spur action to enhance processes to correct inaccurate reporting that does unfortunately sometimes happen.

This report is a precursor to a similar study being conducted by the FTC, as mandated by Congress in the 2003 FACT Act, which is expected to be published in late 2012.  In addition, it is very likely the newly created Consumer Financial Protection Bureau (CFPB) will make review of credit data accuracy and the effectiveness of the credit dispute process a top priority later this year when they begin their oversight of the credit reporting agencies and credit scoring companies like FICO and VantageScore.

Regardless of what any of these studies find, it is important for everyone to periodically get a copy of their credit report and double check that the information being reported is accurate and complete.  Doing this will ensure your credit score is based on accurate and complete information at the most critical time. That is, when you are seeking new credit.

[Related: How to Order Your Free Annual Credit Report]

Image: theilr, via Flickr.com

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