An overview of consumer data and credit reporting

Federal Reserve Bulletin, Feb, 2003 by Robert B. Avery, Paul S. Calem, Glenn B. Canner

For some time, the Board of Governors of the Federal Reserve System has sought to obtain more detailed and timely information on the debt status, loan payment behavior, and overall credit quality of U.S. consumers. Such information could facilitate the Board's analysis of macroeconomic conditions, improve its understanding of the way credit is provided to consumers, and enhance the System's supervision of banking activities. For decades, information of this type has been gathered by credit reporting companies, primarily to assist creditors in evaluating the credit quality of current and prospective customers. The information gathered by credit reporting companies is vast and seeks to cover virtually all U.S. consumer borrowing. (1) To the extent that this information is complete, comprehensive, and accurate, it represents a potential new source of statistical data for the Federal Reserve on consumer credit markets and behavior.

To evaluate the potential usefulness of these data, the Federal Reserve Board engaged one of the three national credit reporting companies to supply the records of a nationally representative sample of individuals. (2) The data provide a unique opportunity to profile the nature and content of information contained in credit reporting company records.

Assessing the usefulness of these data as a potential source of information for the Board involves several tasks. This article is an initial step in the process; it examines the scope and content of the data, using a framework based on key aspects of credit evaluation. This approach is a natural way to begin the assessment process because the credit reporting companies' primary purpose for collecting these data is to facilitate credit evaluation. Future steps will focus on other aspects of this evaluation, including comparing measures of aggregate borrowing activity and credit quality derived from the credit reporting data with measures from other sources.

The article begins with a brief description of the way the credit reporting companies compile and report their data and gives background on the regulatory structure governing these activities. This description is followed by a detailed look at the information collected in credit reports. The discussion of these data is divided along the lines of the major components of consumer credit report data--credit accounts; public records relating to the person's debt or payment obligations (bankruptcy filings, liens, judgments in civil actions, and so on); collection agency accounts; and inquiries regarding credit status. The distribution patterns of items such as account balances, credit utilization, and measures of payment performance by type of account and creditor are broadly described. Key aspects of the data that may be incomplete, duplicative, or ambiguous as they apply to credit evaluation are highlighted in the analysis. The article concludes with a discussion of steps that might be taken to address some of the issues identified.

COMPOSITION AND SOURCES OF CREDIT REPORTING COMPANY RECORDS

Credit reporting companies gather information on an individual's experiences with credit, leases, noncredit-related bills, money-related public records, and inquiries and compile it in a credit record. A credit record generally includes five types of information:

* identifying information such as the name of the individual, current and previous residential addresses, and social security number

* detailed information reported by creditors (and some other entities, such as a medical establishment) on each current and past loan, lease, or non-credit-related bill, each of which is referred to here as a credit account (3)

* information derived from money-related public records, such as records of bankruptcy, foreclosure, tax liens (local, state, or federal), garnishments, and other civil judgments, referred to here as public records

* information reported by collection agencies on actions associated with credit accounts and noncredit-related bills, referred to here as collection agency accounts

* identities of individuals or companies that request information from an individual's credit record, the date of the inquiry, and an indication of whether the inquiry was by the consumer, for the review of an existing account, or to help the inquirer make a decision on a potential future account or relationship.

The consumer credit report, the basic product that the credit reporting companies provide to those seeking information about the credit history of an individual, is the organized presentation of the individual's credit record at the credit reporting company. (4) Industry sources report that credit reporting companies issue approximately 2 million consumer credit reports each day. (5) Access to the information and maintenance of each credit record is governed by conditions spelled out in the Fair Credit Reporting Act (FCRA)(see box "A Summary of Consumer Rights under the Fair Credit Reporting Act").