The FTC’s report was issued pursuant to the Fair and Accurate Credit Transactions (FACT) Act of 2003, which requires the FTC to conduct a study of consumer credit rating accuracy and to report to Congress on its findings every two years, which the FTC has done since 2004. The most recent report (the fifth in the series) focuses on the ability of consumers to locate and correct errors in their credit reports. Each credit report provides a summary of a consumer’s credit history, including an overall “score” assigned based on that history. The most widely used score is the “FICO” score created by the Fair Isaac Corporation, which is used by all three of the major CRAs. The FICO score, which measures the degree of credit risk a consumer poses based on the likelihood that the consumer will meet his or her credit obligations, runs from 300 to 850; the higher the score, the lower the risk.
The FICO score takes into account current and past credit card usage and payment history, loans, and mortgages, public records of bankruptcy, foreclosures and similar proceedings, and unpaid debts. Each time a consumer requests access to credit, such as applying for a credit card, that is registered in the score. The length of credit history is incorporated as well. The approximately 30,000 sources of this information include financial institutions, insurance companies, government agencies, creditors, and collection agencies (collectively known as “data furnishers”). The FTC engaged data furnishers in producing the February 11 study, along with consumers, the CRAs, and the Fair Isaac Corporation.
To conduct its study, the FTC randomly selected 1,001 participants from consumers with credit histories generated by the three national CRAs. The participants were asked to review their credit reports for accuracy and, to help them spot errors, a trained study associate was provided. When errors were found, the participant was urged to challenge any material errors – i.e., errors sufficiently serious to affect the consumer’s credit score – under the dispute resolution mechanism established by the Fair Credit Reporting Act (FCRA). Participants received a provisional FICO score when initiating the challenge and, when the dispute resolution process was complete, they were provided new credit reports and new credit scores. The FTC then used the provisional score, the new report, and the new score for each participant to measure the influence of the errors (actual and potential) on the participant’s credit.
The FTC found that 1 in 4 of consumers (262 participants) discovered a material error in at least one of their three credit reports. (Errors in the “header information” (e.g., addresses, age, employment) are not considered material because this information is not used in determining a consumer’s credit score.) All of these consumers challenged these errors, but only 1 in 5 of them (206 participants) received some kind of credit report change. Of these 206 consumers, the CRAs corrected all the material errors in the reports of 97 consumers. For 109 of them, the CRAs corrected only a portion of the identified errors, and for 56 participants, the CRAs did not correct any errors. When the CRAs did not correct the identified errors, the CRAs informed the 56 participants that the party that had furnished the data denied the existence of any inaccuracy.