An overview of consumer data and credit reporting

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

The status of the remaining credit accounts was not currently reported, and thus assumptions had to be made in order to use the data. Among the accounts that were not currently reported, 70 percent were dormant. For these accounts, the only issue a user of the data had to address was whether the account could be used by a consumer. The accounts in the unknown category, which comprised about 8 percent of all the credit accounts in the sample, present a particularly vexing problem for users of the data because this category includes accounts that had a positive or unknown balance at the date of last report. This category includes accounts that may have been sold, transferred, or paid off but are not reported as such. Also included are accounts, particularly derogatory accounts, that are still outstanding but on which the lender has ceased reporting.

Types of Accounts

Credit reporting companies ask creditors to place each credit account into one of four broad groupings: two types of open-end account (revolving and nonrevolving) and two types of closed-end account (installment and mortgage). Within these four categories, further distinctions can be made by users of the data based on other characteristics--for example, the reported purpose of the loan or the type of creditor.

Revolving accounts were by far the most common type of credit account found in the sample, comprising about 63 percent of all credit accounts and about 71 percent of all open accounts (table 2). Although revolving accounts made up the largest share of accounts, approximately 28 percent of these accounts were dormant. Installment accounts composed the second largest share of credit accounts, representing approximately 27 percent of all accounts in the credit reporting company files. Much less frequently found in these files are records of nonrevolving charge accounts and mortgages. Given the relatively short terms to maturity of most installment loans, it is not surprising to find that installment accounts composed a disproportionate share of all closed accounts in the sample of credit records.

Types of Creditors

Credit reporting company data include the identities and a type classification of the credit provider for each account. For purposes of this analysis, the creditor type classification was used to group accounts into four categories: banking institutions (commercial banks and savings associations), finance companies and credit unions, retailers, and "other." The retail category includes department stores and jewelry, computer, camera, and sporting goods stores. "Other" includes national oil and gas companies, travel and entertainment companies, other retailers, and various creditors such as utility companies, real estate firms, and government entities.

Banking institutions were the largest source of credit accounts recorded in the credit reporting company files, accounting for nearly 45 percent of all the credit accounts and 48 percent of open accounts. The second largest source of credit accounts was retailers. The distribution of accounts by creditor type varies some by account status and is largely a function of the types of accounts that creditors offer. For example, finance companies and credit unions offer primarily installment accounts, which are more likely than revolving accounts to have been paid down and closed. Banking institutions and retailers offer relatively large numbers of revolving accounts, which tend to be used from time to time and to retain their open status.