The CFPB released one of the most comprehensive studies of credit reporting in history last week, revealing consumer experiences with three of America’s largest credit reporting firms, including Equifax, Experian and TransUnion.
“Today’s study is another step toward bringing more clarity to the confusing world of credit reports,” Richard Cordray, the director of the CFPB, said. “It will help educate regulators and consumers about how this important industry works. If consumers know how these companies handle their credit histories, they can make better decisions on how to handle their financial lives.”
Credit reporting firms track consumer credit history, and consumer credit reports and scores have played an increasingly important role for American consumers. Many decisions to grant or deny credit, as well as the setting of interest rates, depend on a consumer’s credit history and score.
Equifax, Experian and TransUnion maintain credit files on more than 200 million consumers. During an average month, the credit reporting firms receive updates from approximately 10,000 information distributors that provide the updates more than 1.3 billion “trade lines,” information sources like a consumer’s car loan account.
The report found that more than half of all trade lines in the databases of credit reporting firms are supplied by the credit card industry. Forty percent of trade lines are derived from bank cards, like general credit cards, while 18 percent are derived from retail credit cards. Only seven percent of trade lines come from mortgage lenders or services, while four percent comes from car lenders.
Approximately 40 percent of disputes are related to collections, and debt in collection is five times more likely to be disputed by American consumers than mortgage debt, due in part to consumers’ incentive to dispute negative credit report information.
Additionally, less than 20 percent of consumers obtain yearly copies of their credit reports, which can be the most effective way for a consumer to identify reporting errors. Most of the information in credit reports is obtained from a small number of financial institutions. The top 10 information distributors provide 57 percent of all trade lines, while the top 50 distributors provide 72 percent.
Most complaints are routed to the information distributors that provided the original information. Credit reporting firms resolve approximately 15 percent of consumer disputes without involving the information distributors, but the report revealed that the data provided by consumers regarding their disputes may not be forwarded to information distributors in order for them to examine the case and report corrections to the credit reporting firm.