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Credit Report Accuracy and Access to Credit
Robert B. Avery, Paul S. Calem, and Glenn B. Canner,
of the Board’s Division of Research and Statistics,
prepared this article. Shannon C. Mok provided
research assistance.
Information that credit-reporting agencies maintain
on consumers’ credit-related experiences plays a cen-
tral role in U.S. credit markets. Creditors consider
such data a primary factor when they monitor the
credit circumstances of current customers and evalu-
ate the creditworthiness of prospective borrowers.
Analysts widely agree that the data enable domestic
consumer credit markets to function more efficiently
and at lower cost than would otherwise be possible.
Despite the great benefits of the current system,
however, some analysts have raised concerns about
the accuracy, completeness, timeliness, and consis-
tency of consumer credit records and about the effects
of data limitations on the availability and cost of
credit. These concerns have grown as creditors have
begun to rely more on ‘‘credit history scores’’ (statis-
tical characterizations of an individual’s creditworthi-
ness based exclusively on credit record information)
and less on labor-intensive reviews of the detailed
information in credit reports. Moreover, decision-
makers in areas unrelated to consumer credit, includ-
ing employment screening and underwriting of prop-
erty and casualty insurance, increasingly depend on
credit records, as studies have shown that such
records have predictive value.
A previous article in this publication examined
in detail the credit records of a large, nationally
representative sample of individuals as of June 30,
1999.
1
That analysis revealed the breadth and depth
of the information in credit records. It also found,
however, that key aspects of the data may be ambig-
uous, duplicative, or incomplete and that such limi-
tations have the potential to harm or to benefit
consumers.
Although the earlier analysis contributed to the
debate about the quality of the information in credit
records, it did not attempt to quantify the effects of
data limitations on consumers’ access to credit. To
1. Robert B. Avery, Raphael W. Bostic, Paul S. Calem, and
Glenn B. Canner (2003), ‘‘An Overview of Consumer Data and Credit
Reporting,’’ Federal Reserve Bulletin, vol. 89 (February), pp. 47–73.
date, publicly available information about the extent
of data quality problems has been limited, as has
research on the effects of those problems.
2
The lack
of information has inhibited discussion of the prob-
lems and of the appropriate ways to address them.
The main reason for the lack of information is
that conducting research on the effects of data limita-
tions on access to credit is complicated. Two factors
account for the complexity. First, the effects vary
depending on the overall composition of the affected
individual’s credit record. For example, a minor error
in a credit record is likely to have little or no effect on
access to credit for an individual with many reported
account histories, but the same error may have a
significant effect on access to credit for someone with
only a few reported account histories. Second, assess-
ments of the effects of data limitations require
detailed knowledge of the model used to evaluate an
individual’s credit history and of the credit-risk fac-
tors that compose the model. Because information
about credit-scoring models and their factors is ordi-
narily proprietary, it is difficult to obtain.
In this article, we expand on the available research
by presenting an analysis that tackles these complexi-
ties and quantifies the effects of credit record limi-
tations on the access to credit.
3
The analysis consid-
ers the credit records of a nationally representative
sample of individuals, drawn as of June 30, 2003,
that incorporates improvements in the reporting sys-
tem over the past few years and, consequently, better
reflects today’s circumstances. We examine the pos-
sible effects of data limitations on consumers by
estimating the changes in consumers’ credit history
scores that would result from ‘‘correcting’’ data prob-
lems in their credit records. We also investigate
2. General Accounting Office (2003), Consumer Credit: Limited
Information Exists on Extent of Credit Report Errors and Their
Implications for Consumers, report prepared for the Senate Commit-
tee on Banking, Housing, and Urban Affairs, GAO-03-1036T, July 31,
pp. 1–18. In 2004, the General Accounting Office became the Govern-
ment Accountability Office.
3. This analysis builds on recent research that attempted to quantify
the effects of credit record limitations on the access to credit. See
Robert B. Avery, Paul S. Calem, and Glenn B. Canner (2003), ‘‘Credit
Reporting and the Practical Implications of Inaccurate or Missing
Information in Underwriting Decisions,’’ paper presented at ‘‘Build-
ing Assets, Building Credit: A Symposium on Improving Financial
Services in Low-Income Communities,’’ Joint Center for Housing
Studies, Harvard University, November 18–19.