Posted by Mike Carone
Consumers, credit bureaus, banks and regulators all share one common goal when it comes to credit reports: they should be as accurate as possible.
In the 2008 financial crisis, one of the main reasons people lost their homes to foreclosure was because some unscrupulous lenders made loans without regard to the borrower’s true financial condition. These “NINJA” loans (No Income, No Job or Assets) loans, also called “No-Doc” loans, were made when borrowers would not qualify under traditional lending standards. So the lenders went ahead and made the loans anyway, regardless of whether the borrower had an ability to repay that loan.
If it’s one thing we learned from that crisis, it’s that we don’t do consumers (or neighborhoods, or banks, or the whole global economy) any favors when they get loans they can’t afford to pay back. In fact, when consumers got a mortgage, they could not afford they went into foreclosure. The consumer’s credit history was ruined for years. Neighborhoods suffered, as houses sat vacant for months while the foreclosure process played out. The holder of the mortgage lost money. Nobody wins when people get loans they cannot afford to pay back.
That is why it’s so important that credit reports are right. We all want lenders to make loans based on their true financial picture. For those who have shown that they have the ability to repay a loan, they get loans at favorable prices, and for those who are not able to handle a new mortgage or other loan, have time to rebuild their credit profile and improve their situation.
And do not forget – not only do consumers and banks demand that credit reports be accurate, the law and regulators do too. In addition, a body of state and federal law and regulation has grown up over the years to ensure that companies in the credit ecosystem maintain “reasonable procedures to ensure maximum possible accuracy.”
CDIA recently released a study on the credit reporting industry’s value proposition. The study notes on page 2 that , “Law, rule, and credit bureau practice also determine which type of information is appropriate for maintenance in a credit file and how this information is to be secured, corrected when needed, and provided to the consumer and/or entities with a demonstrated, permissible need for the data.”
If a consumer learns of an inaccuracy in a report, the credit bureaus have set up easy systems on their websites to start a dispute. The credit bureau then has to do an investigation to determine whether the information is correct or not.
Accuracy is a crucial part of economic opportunity and CDIA and our members work to empower economic opportunity every day.