Improve Accuracy of Consumer Credit Data

Quickly resolve disputes when errors do occur

Lenders, credit bureaus, and consumers all have a vital interest in achieving data accuracy on credit reports. Companies use these reports to make loan approval decisions and depend upon their accuracy. Inaccurate information can lead to incorrect decisions that can have a negative impact on both lenders and consumers alike.

This article explores key questions related to this topic. What are some of the most common errors that data furnishers commit when sending consumer data to the credit bureaus? What do the credit bureaus do with the data furnished to them? Why is the Metro 2 file important? How can lenders empower their customer service representatives to proactively assess and respond to consumer disputes?

Savvy consumers that find inaccuracies on their credit report can choose from a few courses of action to resolve the errors:

1. File a dispute with the lender that furnished the data to the credit bureau(s).
2. File a dispute with the credit bureau(s).
3. File a complaint with the Consumer Financial Protection Bureau (CFPB).
4. Hire an attorney to do all three!

Even when the consumer has effectively communicated an inaccuracy, it can sometimes still be perpetuated on their credit report.?This occurs due to systemic errors in the way corrections are recorded and transmitted to the bureaus by the data furnisher.

Many lenders are seeking to harden their internal and external quality control procedures to validate the data they furnish to credit bureaus. This means ensuring that the data is not only correct but is also accurately reflected on the credit bureau report. There can be significant financial consequences for furnishing inaccurate consumer data to the credit bureaus.

Requirements for Lenders and Credit Bureaus Concerning Accuracy

Both lenders and credit bureaus have obligations to ensure the accuracy of data on credit bureau reports. According to Fair Credit Reporting Act (FCRA) regulations, lenders should establish and implement reasonable written policies and procedures regarding the accuracy and integrity of information relating to consumers that they furnish to credit bureaus. Likewise, the FCRA also states that credit bureaus should follow “reasonable procedures to assure maximum possible accuracy of the information concerning the individual about whom the report relates.”

Common Credit Report Errors

To err is human, and since the credit reporting system involves thousands of entities using varying systems to report vast amounts of data on millions of consumers, inaccuracies can happen on an individual’s credit report in several ways.

The consumer might provide inaccurate information when applying for a loan, or the creditor might make a manual error when inputting the consumer information into the underwriting system. An error can occur if the bureau matches the information of a consumer to the wrong individual’s credit file. Inaccuracies can come from mistakes or missing identifying information in government files. They often occur to victims of identity theft or identify fraud. Here is some more detail on the types of errors that can occur.

Furnishing Old Information. FCRA regulations require that lenders and credit bureaus report information on credit reports that is current. If they fail to do so, they have violated the FCRA. Examples include:

• Failing to report that a debt was discharged in bankruptcy.
• Re-aging old debts by reporting them as new.
• Re-aging a debt by reporting credit information that is more than seven years old.
• Reporting an account as active when it was voluntarily closed by the consumer.
• Reporting bankruptcies and judgments that are over ten years old.
• Reporting duplicative tradelines by listing the same account as multiple different debts.
• Mixing information from the credit files of two different individuals (a relative or another with a similar name).
• Reporting someone as deceased when they are not.
• Tradelines that reappear on a consumer’s report after they’ve been deleted by the bureau to resolve a dispute.

Reporting Inaccurate and Incomplete Information. Lenders and credit bureaus cannot report information that they know or should know is inaccurate. Examples include:

• Reporting a settled or paid in full debt as charged-off.
• Reporting an inaccurate balance.
• Reporting an overdue payment when the borrower actually paid on time.
• Reporting an account as someone else’s.
• Listing a cardholder as debtor when they are actually an authorized user.
• Reporting an account previously marked as identity theft.
• Reporting incomplete payment history.

Failing to Follow Dispute Procedures. When a consumer files a dispute, the bureaus have a duty to conduct a?reasonable reinvestigation?of the consumer’s credit dispute. They must correct any inaccurate information or delete the debt from the consumer’s credit report if they have not verified within 30 days. Common violations include:

• Not notifying the creditor of a consumer’s dispute.
• Failing to conduct a “reasonable reinvestigation” of a dispute.
• Failing to remove incomplete or unverifiable information within 30 days of receiving a dispute letter.

What Happens When Credit Bureaus Receive Information from Data Furnishers?

The credit bureaus have designed processes to standardize, automate, and check the quality of incoming information supplied by tens of thousands of data furnishers. Before accepting information, bureaus indicate that they perform quality control and background checks on would-be furnishers. Most new and existing furnishers provide consumer data electronically to the bureaus using a standardized data format called Metro 2. The Consumer Data Industry Association (CDIA) developed the Metro 2 format and has refined it over time.

A key step in the organization of data that makes it possible to create credit reports is the “matching” process by which the credit bureaus assign incoming tradeline data to consumer-specific credit files. Each bureau has spent decades developing and refining their unique and proprietary data architectures to manage the “matching” process.

Accurately matching tradeline information to the correct consumer can be quite challenging. The absence of an objective, universal third-party source of information to verify against makes the process more complex. Similarities between consumers’ names and addresses (particularly amongst relatives) or colloquial variations in their names (e.g., Kimberly, Kimmie, Kimi, Kim, etc.) occasionally results in inaccurate matches depending upon the sophistication of the matching algorithms used and the quality of the input data provided.

Metro 2 Input File Accuracy

The Metro 2 format is a standardized method for reporting credit information, including credit accounts, payment history, and public records such as bankruptcies and liens. The format specifies the data fields and data elements that lenders must provide in their credit reporting to credit bureaus. It also sets guidelines for how credit data should be reported and includes rules for formatting, data validation, and data transmission. The Metro 2 format is an important standard for credit reporting that helps to ensure accuracy and consistency in credit reports.

Overall, credit bureaus use a combination of algorithms and checks to verify and validate the information they receive from lenders. ?The methods used are proprietary and specific to each bureau. ?Although they help to ensure the accuracy of credit reports and provide lenders with reliable data for evaluating creditworthiness, errors can still happen as data moves through the system via the Metro 2 file format.?

Lenders can take steps to ensure that the data they submit to credit bureaus is as accurate as possible, including verifying borrower and loan information and performing data quality checks.?

Once Metro 2 files are transcribed by the bureaus, lenders can and should perform audits and work closely with the bureaus to ensure errors are resolved quickly.?Proper diligence can help prevent errors, improve data quality, and ensure that consumers have access to accurate credit information.

Empower customer service representatives to proactively assess and respond to consumer disputes

Lenders can empower their customer service representatives to proactively assess and respond to consumer disputes regarding information that the lender has furnished to the credit bureaus by following these steps:

1. Train customer service representatives on the dispute resolution process and provide them with the necessary tools and resources to respond to consumer disputes effectively. This can include providing scripts, training materials, and access to the lender's internal systems to view and update customer account information.
2. Lenders should establish clear dispute resolution procedures and communicate them to their customer service representatives. This can include defining roles and responsibilities, identifying key stakeholders, and establishing timelines for responding to disputes.
3. Empower customer service representatives to initiate disputes on behalf of consumers when they identify inaccuracies or errors in credit reports. This can include providing access to credit reporting tools and templates to facilitate the dispute resolution process.
4. Lenders should provide ongoing feedback and support to their customer service representatives to help them improve their dispute resolution skills and knowledge. This can include providing coaching, training, and resources to help them better understand consumer credit reporting issues and how to address them effectively.
5. Monitor dispute resolution outcomes and adjust dispute resolution procedures as needed to improve effectiveness. This can include tracking dispute resolution outcomes, analyzing trends, and adjusting policies and procedures based on feedback from customers and customer service representatives.

By equipping customer service representatives to proactively assess and respond to consumer disputes regarding information that the lender has furnished to the credit bureaus, lenders can help to improve customer satisfaction, prevent errors, and maintain the accuracy of credit reports.?

Conclusion

Maintaining accurate consumer credit reports is essential for lenders, credit bureaus, and consumers. Inaccurate information can lead to incorrect loan approval decisions and negatively impact both lenders and consumers. Therefore, it is critical for lenders to establish and implement reasonable policies and procedures to ensure data accuracy and integrity when reporting information to credit bureaus. The credit bureaus also have a responsibility to follow reasonable procedures to ensure the maximum possible accuracy of the information reported in credit reports. By understanding common credit report errors, lenders can take proactive steps to avoid them and ensure the accuracy of their data. Prioritizing data accuracy and integrity protects lenders and their customers from the negative consequences of inaccurate credit reporting.

The credit reporting system relies heavily on the accuracy of the information provided by data furnishers and the thoroughness of the credit bureaus' data matching process. The Metro 2 format provides a standardized method for reporting credit information and helps to ensure consistency and accuracy in credit reports. However, errors can still occur as data moves through the system.

Lenders can take steps to ensure the accuracy of the data they provide to credit bureaus and verify that the information is being accurately transcribed to consumers' credit reports. By doing so, lenders can help to prevent errors, improve data quality, and ensure that borrowers' credit reports are accurate and up-to-date, benefiting both lenders and consumers alike.

If you're looking to make improvements in these areas, the team at Digital Matrix Systems can help. This quick 90-second video shares one of the tools available to streamline the review and handling of consumer credit report inquiries and disputes. Learn more on our website and get in touch to schedule a demo.