You are currently viewing “Lenders are very comfortable with this way of doing things”: we are stuck with our credit reporting system, despite errors and data breaches.  Here’s why.

“Lenders are very comfortable with this way of doing things”: we are stuck with our credit reporting system, despite errors and data breaches. Here’s why.

The credit reporting industry may have flaws, but we’re more or less stuck with them.

Equifax EFX,
one of the three major credit bureaus, sent wrong scores to millions of lenders, leading to higher interest rates and denied applications, The Wall Street Journal reported this week. This follows a data breach by the same company in 2017 that exposed the personal information of 147 million people.

When the credit bureaus report incorrect information about an individual, it potentially hampers that person’s ability to buy or rent a home, get a car loan, open a new credit card, and even figure out what rate she gets on her insurance.

Given the central role of credit reporting agencies in the daily lives of Americans, this is a high-stakes operation.

Experian, Equifax and TransUnion maintain files on approximately 200 million adults and more than 1.6 billion credit accounts

Currently, the three major credit bureaus, Experian EXPGY,
Equifax and TransUnion TRU,
keep files on about 200 million adults and more than 1.6 billion credit accounts, the Consumer Financial Protection Bureau said.

Earlier this year, the government watchdog published a report criticizing the way the big three have responded to consumer complaints, calling them an ‘oligopoly’ which has ‘little incentive to treat consumers fairly when their credit reports contain errors”.

Regarding the Equifax coding error, the company said in a statement posted on its website that it takes data errors “very seriously” and added that it was a “problem of technology coding” between March 17 and April 6 which has since been corrected.

“As part of this in-depth analysis, we determined that there was no change in the vast majority of scores over the three-week period of the issue,” Equifax said. “For consumers who experienced a score change, initial analysis indicates that only a small number may have received a different credit decision.”

“Our data shows that fewer than 300,000 consumers experienced a score change of 25 points or more,” he added. “Although the score may have changed, a change in score does not necessarily mean that a consumer’s credit decision has been negatively affected. We work with our customers to determine the real impact on consumers.

The three credit bureaus did not respond to MarketWatch’s request for comment regarding the CFPB’s categorization.

Alternative Credit Score Models

Several startups offer alternative credit-scoring models that use artificial intelligence and data from your smartphone to extrapolate the likelihood that a borrower will repay a loan. Your digital footprint could also be used to predict consumer reliability, according to a 2018 study conducted by the Frankfurt School of Finance & Management.

But it’s hard to imagine an alternative model that covers millions of people over a sufficient period of time, and in a fair and consistent way.

Using income to assess creditworthiness is likely to work best for smaller loans, Mingli Zhong, an economist at the Urban Institute, told MarketWatch.

“But for mortgages or auto laws, those are big financial transactions, so I don’t think income is a very good measure,” Zhong explained, “because it’s less stable than your credit history. and your total savings and assets”.

Times of recession could cause you to be laid off, which means you have a steady $0 income, but your ability to repay your loans may not change if you are able to land odd jobs, for example.

“Lenders are very comfortable with this way of doing things, and it would take a lot to change their minds.”

— Ted Rossman, Senior Industry Analyst at

Additionally, creating an alternative system to the existing credit scoring method requires a thorough understanding of each adult’s individual and family wealth, Zhong said, such as how much they have in their savings accounts and of checks.

“It’s usually difficult in the United States because people would like to protect their privacy,” Zhong said. “They don’t want to disclose all their wealth. That’s probably why we have the credit score system, to kind of estimate how much money people have.

The current method of credit scoring is also primarily an equalizer, Ted Rossman, senior industry analyst at, told MarketWatch.

Like standardized tests in schools, the existing system is a “useful way to put all applicants on the same scale”, he explained. Moreover, it is something that has been done for a long time.

“I don’t see the industry moving away from it anytime soon. Lenders are very comfortable with this way of doing things, and it would take a lot to change their minds,” Rossman added. “They trust the process. Mortgage credit is particularly regulated and would be among the most difficult to change.

Ultimately, having more competition could backfire, given the sensitivity of some of this financial information.

“If we have more agencies, there would be more chances of our social security numbers being leaked,” Zhong said.

But Zhong acknowledged that the existing credit score system has been a longstanding obstacle for immigrants trying to buy a home or take out a car loan.

“It’s far from perfect,” he said.

Do you have ideas on the housing market? Write to MarketWatch reporter Aarthi Swaminathan at

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