A couple of weeks ago the Consumer Financial Protection Bureau (hereafter “CFPB”) published the results of a study hoping to further clarify the happenings at the three national credit reporting agencies: Equifax, Experian and TransUnion.
These three companies maintain over 200,000,000 credit files each and countless pieces of our personal and financial information.
The numbers from the study are impressive, to say the least.
Monthly updates from 10,000 companies
Each month our creditors update the information for our active accounts.
These updates include balance changes, late payments, adding new accounts, and removing information deemed to be inaccurate.
Credit files contain over 1,300,000,000 accounts
Yes, that’s billion — with a “B.” The massive number of accounts includes auto loans, mortgages, credit card accounts, and student loans.
Of the 1.3 billion accounts, 58% are plastic
That’s right, some 754 million of the accounts on credit reports are credit cards.
The list of cards includes general use credit cards (Visa, MasterCard, Discover) and retail store credit cards. Four percent of the accounts on credit reports are auto loans and seven percent are mortgages.
This makes sense because it’s very easy to have several credit cards, while it’s not as easy (or necessary) to have several mortgages or auto loans.
Disputes are dominated by collections
Consumers have the right to challenge the validity of the information on their credit reports.
In fact, in 2011, the credit bureaus received 8,000,000 consumer disputes, which challenged around 35,000,000 credit file entries and about 40% of those disputes were specific to debt in collections.
According to the CFPB, debt in collections is five times more likely to be disputed than a mortgage loan. But these numbers don’t suggest that credit reports are loaded with errors or that collections are disproportionately incorrect.
According to the Consumer Data Industry Association (hereafter “CDIA”), the trade association of the credit bureaus, some 30% of disputes are submitted by credit repair organizations where collections are a likely target.
We’re not claiming our credit reports
The CFPB’s study suggests that fewer than 20% of consumers “obtain” copies of their credit report each year.
However, in my interviews with the CDIA, the percentage of free credit reports claimed via the only official source, annualcreditreport.com, is closer to 4%.
Regardless, the numbers are abysmal.
The 80/20 rule doesn’t apply
You’ve heard of the 80/20 rule, right? That rule, formally known as the Pareto Rule, means 80% of X comes from 20% of Y.
As a hypothetical example, “80% of car accidents are caused by 20% of drivers.” The rule is meant to underscore that the majority of the volume of something is being caused by a small number of causes.
Well, when it comes to data on a credit report, the 80/20 doesn’t apply…and it’s not even close.
According to the CFPB’s study, 76% of the information contained in your credit files comes from 100 companies.
And, because there are over 10,000 companies providing data to the credit bureaus, the “rule” would be the 76/1 rule, as 76% of credit data is being provided by only 1% of the companies that furnish data to the credit bureaus.
If that’s not impressive enough, 10 companies alone provide 57% of the account information and 72% is provided by 50 companies.
Most disputes require assistance from the original source
When a consumer submits a dispute to the credit bureaus, which happens ~8 million times each year, the credit bureaus are able to resolve 15% of them without involving the furnishing party (normally a lender or collection agency).
That means 85% of the time when you dispute an item with a credit bureau they’re passing your dispute on to the furnishing party asking them to take on the legally required burden of investigating your dispute.
John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a contributor for the National Foundation for Credit Counseling. He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. The opinions expressed in his articles are his and not of Mint.com or Intuit. Follow John on Twitter.