In recent months, public attention has focused on the role of credit bureaus in society. President Biden put forward a proposal for a public credit reporting agency (See note 1), Congress has held hearings on credit reporting (See note 2), and the Consumer Financial Protection Bureau (CFPB) continues to focus on credit data accuracy. Debate on credit reporting should be rooted in a robust understanding of how the credit reporting system works. This paper summarizes the current landscape of consumer credit reporting and what we know about credit report accuracy.
Accuracy in credit reporting requires the collaboration of several entities, including of credit reporting agencies (CRAs), data furnishers (such as lenders), and consumers. Each entity has a specific responsibility in facilitating accuracy. CRAs take in information from data furnishers and append it to the credit files of individual consumers. Data furnishers are responsible for supplying timely and accurate information about consumers to the CRAs. Consumers have a role in monitoring their credit reports and verifying that the information contained in them is accurate.
When consumers identify potentially inaccurate information, they can raise disputes through a process that the CRAs and data furnishers are responsible for facilitating. Data furnishers are responsible for investigating any disputes raised by consumers that involve their information, whether directly or through a CRA. Overseeing this credit reporting ecosystem are regulatory bodies such as the Federal Trade Commission (FTC) and the CFPB, which enforce regulations such as those laid out in the Fair Credit Reporting Act (FCRA).
The accuracy of credit reports has long been a topic of interest. Two of the most frequently cited studies on this topic were published in 2011 and 2012. While dated, these studies provide the most comprehensive review of accuracy in credit reporting. They accomplished this by asking a nationally representative sample of consumers to review their credit reports and dispute any information they thought to be inaccurate. The results of their disputes were used to determine the accuracy rates in credit reporting as of a decade ago. Confirmed errors that resulted in a change to a lower-risk credit tier ranged from 0.5 percent to 2.2 percent across the studies.
Since these studies were conducted, the credit reporting ecosystem has strengthened and evolved. Legislation and legal settlements have updated what information appears in credit reports. In addition, the Nationwide CRAs (NCRAs) ― Equifax, Experian, and TransUnion ― have launched their own initiatives to improve their data processes. As a result of these changes and others that have occurred over the past decade, the prior accuracy studies are dated, and current accuracy rates are not known.
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NOTES
1. https://joebiden.com/racial-economic-equity
2. Consumer Credit Reporting: Assessing Accuracy and Compliance – Virtual Hearing May 26, 2021, US Committee on Financial Services, Subcommittee on Oversight and Investigation.
We would like to thank Frank Chiang, Senior Oliver Wyman Consultant and Corey Stone, Senior Advisor to Oliver Wyman for their work and contribution on this report.
