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Credit Reporting Agencies (CRAs) collect consumer data, such as names, addresses, social security numbers, credit histories, and public information, then compile that information into consumer credit reports. CRAs also use this information to develop proprietary credit scores or share that information with entities that develop credit score models, which indicate a consumer’s propensity to repay a loan.
These credit reports and credit scores are sold to third parties, such as banks, insurance companies, employers, landlords, and other entities that would like more information on an individual before entering into a formal relationship.
The credit reporting system serves as an independent and consistent mechanism for community banks to assess a consumer’s past financial behavior and anticipate their future performance when making underwriting decisions. The accuracy of credit reports, including the completeness and veracity of the information, is of the utmost importance to community banks, since the utility of the credit report is closely correlated with its accuracy and completeness. Competition among CRAs results in more accurate and higher quality data and lower credit costs for borrowers.
Recent legislative, judicial, and executive activity has reduced the efficacy of credit reports and increased the burden of participation in its ecosystem. Among other consequences, the result of this activity makes it easier for individuals to make fraudulent claims of credit report inaccuracies.