This came out today from the Consumer Federation of America (CFA) and the National Credit Reporting Association (NCRA). They're telling the public what we have known for a long time. Charlie
FOR IMMEDIATE RELEASE
Tuesday, December 17, 2002
Jack Gillis 202-737-0766
Millions of Americans Jeopardized by Inaccurate Credit Scoress
Washington, D.C. - Millions of Americans could pay more for - or be denied - credit, insurance, or utilities because of inaccurate credit scores, according to a new study, Credit Score Accuracy and Implications for Consumers, released this morning by the Consumer Federation of America (CFA) and the National Credit Reporting Association (NCRA).
Research for the study, conducted during the summer of 2002, analyzed the credit scores of more than 500,000 consumers, and extensively reviewed the files of more than 1,700 individuals, maintained by the three major credit repositories - Equifax, Experian, and Trans Union. Nearly 200 million Americans have credit files.
The analysis of the scores in 502,623 merged credit files reveals that 29 percent of these consumers had scores with a range of at least 50 points, while four percent of the consumers had score ranges of at least 100 points. The average range of the three scores was 41 points, and the median range was 35 points. Credit scores range from approximately 400 to 800.
"This frequent huge discrepancy in scores reveals the importance of consumers being able to quickly learn and correct inaccuracies," said J. Robert Hunter, CFA's Director of Insurance. "Creditors should be required to provide to consumers, charged anything other than the best available rate or denied credit, a copy of credit reports free of charge, then to reconsider their decision based on any corrections," he added.
The research was conducted with explicit safeguards to protect the privacy and anonymity of all consumers whose credit records were examined. No names, addresses, social security numbers, dates of birth, account numbers or any information that could be used to trace back to a specific consumer were recorded during the research.
What Are Credit Scores?
A credit score is a single number, based on an analysis of information contained in a credit report, that provides an indication of how likely a person is to repay his or her debts. It is based on several types of information, including payment history, amount of debt owed, and types of credit used. Credit scores, and the credit reports on which they are based, increasingly influence consumer access to credit, housing, insurance, basic utility services, and even employment.
The growing use of credit scores has increased the speed with which many credit decisions can be made, the potential for customized pricing of credit, and the overall efficiency of credit granting. However, in consumer lending, inaccurate scores can result in unfair treatment of borrowers who are denied or charged high prices for credit.
Errors of Omission and Commission Found
The analysis of 51 representative files for consistencies and inconsistencies revealed reasons for these differences in scores. Common errors of omission were the failure to report a negative event - for example, a delinquency or charge off - or a positive event - for example, payments on an account. Seventy eight percent of files were missing a revolving account in good standing while one-third (33 percent) of files were missing a mortgage account that had never been late.
More serious errors of commission appeared in a significant portion of files. In 43 percent of the files, reports on the same accounts conflicted in regard to how often consumers had been late by 30 days. In 29 percent of the files, there was conflicting information about how many times the consumer had been 60 days late. And in 24 percent of the files, conflicts existed about 90-day delinquencies. Reported delinquencies have a large effect on credit scores.
"While the sample of 51 is too small to generalize reliably to all credit files, the frequency of errors in these files strongly suggests that errors of omission and commission exist in the credit files of millions of consumers," said Terry W. Clemans, NCRA Executive Director. "Further, these errors or inconsistencies are being factored into decisions made via automated underwriting models and credit scoring systems," he continued.