Researchers from the UA Norton School and two other institutions will conduct a year-long study to assess how well three huge credit agencies portray the creditworthiness of individuals. The Take Charge America Institute, the financial education outreach program at the University of Arizona, has begun collaborating on a $1.13 million study on credit report accuracy for the U.S. Federal Trade Commission.
The institute, part of the UA Norton School of Family and Consumer Sciences, is working in partnership with the Center for Business and Industrial Studies at the University of Missouri-St. Louis and Fair Isaac Corp.
UA professor Michael Staten and assistant professor Cathleen Johnson are part of the research group and worked on the design and execution of the project. Staten, Johnson and their colleagues are supported by a team of research assistants and specialists in information technology. Fieldwork will take place over the next 12 months, with a final report expected by late fall 2011.
The information in consumer credit reports has become increasingly important as a barometer of a person's creditworthiness. Credit reports are now the gateway to getting a mortgage, credit cards, insurance and an apartment lease. Some employers even examine credit reports before making a job offer.
Financial education programs stress the importance to consumers of checking their credit reports and credit scores. But for most of the last two decades, consumer groups and the media have repeatedly challenged the accuracy of credit report content.
Each month the three major national credit reporting agencies – TransUnion, Equifax and Experian – merge more than 2 billion pieces of new and updated credit information from data furnishers into individual credit reports. Data furnishers are mostly creditors, principally lending institutions, who report loan amounts and payment histories to the three major credit bureaus.
Furnishers also can be doctors, hospitals and other health-care providers reporting unpaid medical bills; collection agencies trying to collect on delinquent accounts; cell phone service providers, and so on.
According to Staten, "This study is long overdue.The public policy goal underlying the research is to understand how accurately the credit bureaus assemble this information and whether it provides creditors with a fair and reliable picture of a person's credit and payment history. With so many consumer transactions dependent on credit reports and scores, its critical to both consumers and businesses for the system to get this right."
The study will inform the FTC as the commission develops recommendations for Congress on regulatory policies and industry practices regarding credit reporting. The detailed information on credit usage and payment behavior of individuals also will allow the research team to consider how best to educate consumers about the sensible use of credit and how to protect against fraud and abusive lending practices.
Read more about Mike Staten and Cathleen Johnson.
Read more about Take Charge America Institute at http://tcainstitute.org/