An overview of consumer data and credit reporting

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

Overall, research and creditor experience has consistently indicated that credit reporting company information, despite any limitations that it may have, generally provides an effective measure of the relative credit risk posed by prospective borrowers. (10) Nonetheless, the industry and its critics alike recommend that consumers review their credit reports periodically, especially if they are in the market for new credit, if they have been denied credit, or if their creditor has changed the terms of an account on the basis of credit reporting company information.

DESCRIPTION OF CREDIT REPORTING COMPANY RECORDS

One of the three national credit reporting companies provided the Federal Reserve with the full credit records (with the exception of personal and creditor identifying information) of a nationally representative sample of individuals as of June 1999. (11) Approximately 248,000 individuals included in the database of the national credit reporting company were randomly selected (table 1). (12) The credit reporting company then provided the Board with the entire credit record of each of these individuals, excluding any identifying information. Each consumer credit record contained possibly more than 350 variables that described consumer credit usage and performance.

The sample contains information on about 2.58 million credit accounts, a number that, by the authors' estimate, translates into approximately 1.43 billion credit accounts in the credit reporting company's full database (table 2, memo item). The authors estimate the aggregate balances owed on the credit accounts in the full database to have been $6.7 trillion as of June 30, 1999. Credit accounts were reported by thousands of organizations, including more than 23,000 creditors reporting currently (those providing data at the time the sample was drawn).

Individuals have credit reporting company records for a number of reasons: having a record of a credit account (whether open and active or not), being an authorized user on a credit account, having a money-related public record, having a record of a collection action, or having had an inquiry about their credit circumstances. Approximately 87 percent of individuals in the sample had a record of a credit account, and 92 percent of these had an open and active account as of the date the sample was drawn (table 1). A very small share of the individuals in the sample had only a public record item or an inquiry. However, about 11 percent of the sample had a credit reporting company record only because of a collection action.

The following discussion highlights the contents and scope of the data in the sample. A close examination of the data reveals that the information is not complete in all regards and at times contains duplications and ambiguities. These omissions and limitations may require users of the information to make assumptions about how to treat certain reported items in developing a credit profile for a consumer. The following discussion reviews the more important of these issues and quantifies their scope. Because the information is now somewhat dated, some of the patterns presented here may not reflect current circumstances.