Although everyone is entitled to a free copy of their credit report each year, only about 20 percent of eligible recipients actually obtain a copy. Also, the majority of the information in the typical credit report is provided by a small number of large banks.
These are some of the facts contained in the latest report from the Consumer Financial Protection Bureau, entitled: “Key Dimensions and Processes in the U.S. Credit Reporting System: A review of how the nation’s largest credit bureaus manage consumer data.” The report, published Dec. 13, focuses on the top three credit bureaus, Equifax Information Services, LLC, TransUnion LLC, and Experian Information Solutions Inc. Between the three companies, they have more than 600 million files on consumers.
The CFPB is focusing on credit bureaus as one of the non-bank financial businesses under its supervision. Previously, it issued looked into specialty credit bureaus; this is its first published work focusing on the largest credit bureaus.
“Today’s study is another step toward bringing more clarity to the confusing world of credit reports,” said CFPB Director Richard Cordray. “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.”
One of the most interesting parts of the report shows the impact of certain credit events on an individual’s credit score. For example, if a consumer goes delinquent on a credit card by 30 days or more, the impact on their FICO Score would be a drop of 90 to 110 points, assuming a starting point of 780. The impact of a mortgage charge-off or foreclosures for that same consumer with the 780 FICO score would be a drop of 140 to 160 points. And a bankruptcy filing would drop the score by 220 to 240 points.
The CFPB is concerned about the possibility of inaccurate information being used to determine creditworthiness. The report states, however, that “the extent to which credit reports contain material inaccuracies is uncertain.” It did say, however, that the credit reporting agencies received 8 million contacts from consumers in 2011 regarding some 35 million disputed items in consumer files.
More than half the information in the credit files comes from the credit card industry. The report specifies that 40 percent of the information comes from bank card companies, 18 percent comes from retail credit card companies. About 7 percent comes from mortgages lenders or services, and another 4 percent comes from auto loan companies. Many of the disputes that come up related to collections. The report says 40 percent of disputes are related to debt collection.
Although credit bureaus receive information from some 10,000 companies, most of the information in the files comes from only a small number of companies. The top 10 data supplies provide 57 percent of the information in the files. The top 50 furnishers provide 72 percent.