Data Furnishing 101: Demystifying Credit Scores & Achieving Accurate Reporting

In the complex world of consumer finance, credit scores play an important role not only for consumers, but lenders as well. Data furnishing organizations can shape scores by ensuring accurate and timely reporting. This blog clarifies the process of credit score changes, addressing the impact of inaccurate reporting and potential for errors.

By Kevin Kirchman

Editorial Note: This article was originally published in the Bridgeforce insights collection.

The Dynamics of Credit Score Calculation

In a recent study conducted by Consumer Reports, researchers “found that almost half of consumers who recently volunteered to check their credit reports found mistakes in them, with more than a quarter finding serious errors involving debts that could damage their credit scores and limit their financial opportunities.”

It is no secret that the algorithm behind the various available credit score models is considered “black box” technology. From FICO and Vantage to independent lender credit models, each score is built primarily using the traditional – and sometimes non-traditional – credit attributes reported to the National Credit Reporting Agencies by data furnishers nationwide.

Consumer credit scores are not static figures; they fluctuate based on a complex dance of credit data attributes. One widely used industry score considers five primary elements:

1. Payment history
2. Amounts owed
3. Length of credit history
4. Credit type mix
5. New credit

Any piece of information reported can influence these factors, potentially causing shifts in a consumer’s credit score.

The Ripple Effect of Data Furnishing

As data furnishers, your role extends beyond just reporting. The information furnished has real-world implications for consumers. For instance:

• Reporting in a timely manner can help improve positive payment history
• Accurately reporting credit limits represents appropriate credit utilization ratios
• Closing paid accounts better demonstrates debt to income

It’s important to remember that nearly every data point furnished to the CRAs can be used in credit scores and ultimately impact consumers. However, despite best efforts, errors do occur in credit reporting. Common inaccuracies include:

• Duplicate account reporting
• Inaccurate account statuses
• Inaccurate negative history
• Misreported personal information, or PII

According to the October 2024 Supervisory Highlights, findings showed that furnishers who fail to promptly update or correct inaccuracies can continue reporting incorrect data for months or a year. This can have "prolonged negative impacts on consumers' credit scores."

"[inaccuracies] can have prolonged negative impacts on consumers' credit scores" - CFPB Supervisory Highlights, Oct. 2024

Correcting Inaccuracies and the Timeline for Credit Score Adjustments

Inaccurate reporting can stem from multiple different scenarios. Individual consumer inaccuracies can occur from operator errors, while larger, holistic issues can present themselves from system migrations and portfolio changes. It is critical to identify the root cause, scope and scale of the inaccuracy when determining how to best correct this problem.

Three traditional ways of correcting inaccurate reporting:

1. Manual updates submitted through the e-OSCAR? disputes system
2. Updating the systems of record and submitting an updated Metro 2?file
3. In the event of a larger correction effort, individual CRAs may be able to assist with an ad-hoc project

Once a correction is made, consumers naturally anticipate improvements in their credit scores. Many believe recovering from inaccurate reporting takes months or years. A lower credit score typically improves over time through consistent positive credit habits. However, if an error from inaccurate reporting is corrected and no other factors have changed, the score should return to its original level immediately.

The near real-time nature of credit inquiries means that a traditional credit pull reflects the point in time when it was conducted. Therefore, swift corrections ensure consumers’ financial habits and creditworthiness are accurately reflected, maximizing lending opportunities. “The CFPB has found that some furnishers fail to promptly update or correct inaccurate information, sometimes continuing to report incorrect data for months or even over a year after identifying the inaccuracies through internal audits. This delay in correction can have prolonged negative impacts on consumers’ credit scores.” (CFPB Supervisory Highlights, Oct. 2024)

Causes of Data Issues

Bridgeforce Data Solutions collaborated with clients to analyze their indirect dispute data and compare it to the Metro 2? files they report. This analysis revealed valuable insights, including details about data issues. Below is an excerpt from the report:

The data issues are mostly from a mix of furnishing, CRA changes, and responses to prior disputes.

• Data issues often create ambiguity, and therefore cost and risk.
• The consistency with which disputes agents address the data issues varies widely. (Varies from 40% to 98% in organizations actively fixing data issues.)
• Seeing the end-to-end view of the chain of events is very helpful for understanding root cause.
• There are differences in the data handling practices across the CRAs, so it is valuable for furnishers to understand what is happening with the data they furnish.

Source: Bridgeforce Data Solutions

Proactively Mitigate and Limit Inaccurate Reporting Potential

While correcting inaccurate reporting in a timely manner is important, data furnishers can try to limit the chance for such inaccuracies to occur. For example, implementing robust policies and procedures can significantly reduce the likelihood of inaccurate reporting. Here are key strategies we recommend:

Strengthen Policies and Procedures

• Develop comprehensive guidelines for data collection, verification, and reporting
• Regularly review and update these policies to align with industry standards and regulatory requirements
• Implement strict data quality checks before submission to credit reporting companies

Perform Effective Change Management

• Establish a formal change management process for any modifications to reporting systems or procedures
• Conduct thorough impact assessments before implementing changes
• Provide adequate training to staff on new processes or system updates

Implement Rigorous Testing Protocols

• Use regression testing for all system changes to ensure existing functionalities remain intact and changes do not inadvertently cause inaccuracies in furnishing files
• Conduct regular data accuracy audits
• Perform periodic end-to-end testing of the entire reporting process
• Work directly with each CRA to ensure any changes made to the reporting platform are addressed prior to production

“The CFPB has found that some furnishers fail to promptly update or correct inaccurate information, sometimes continuing to report incorrect data for months or even over a year after identifying the inaccuracies through internal audits. This delay in correction can have prolonged negative impacts on consumers' credit scores.” - CFPB Supervisory Highlights, Oct. 2024

Enhance Data Validation

• Use automated data validation tools, (like the Data Quality Scanner) to catch errors before reporting
• Implement double-check procedures for high-impact data points
• Regularly cross-reference internal records with reported data

Maintain Continuous Staff Training

• Provide ongoing education to staff on the importance of accurate reporting
• Keep team members updated on the latest regulatory requirements and industry best practices
• Conduct regular refresher courses on data handling and privacy protocols

Start Your Data Furnishing Review Today

Bridgeforce provides tailored solutions for Fair Credit Reporting Act (FCRA) compliance success, with proven strategies to meet each client’s unique requirements. With 70+ FCRA clients and 160+ successful implementations, we partner with you to tailor a plan that considers your system of record and operations to best optimize timing and cost. Each client is different, and each solution is customizable.

All options can include:

• Multiple Systems of Record for data furnishing and centralized disputes operations
• Advisory support for a Metro 2? data mapping and procedure development
• Full customization to meet any client’s need

Given the CFPB’s focus on accurate credit reporting, it’s more important than ever for data furnishers to ensure their reporting practices are compliant and accurate. Elevate your compliance strategy with our adaptable expertise.

Read this article at Bridgeforce.com