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An Overview of Consumer Data and Credit Reporting. Robert B. Avery, Paul S. Calem, and Glenn B. Canner, of the Board's Division of Research and Statistics, and Raphael W. Bostic, of the University of Southern California, prepared this article. For some time, the Board of Governors of the Federal Reserve System has sought to obtain more detailed and timely information on the debt status, loan payment behavior, and overall credit quality of U.S. consumers. Such information could facilitate the Board's analysis of macroeconomic conditions, improve its understanding of the way credit is provided to consumers, and enhance the System's supervision of banking activities. For decades, information of this type has been gathered by credit reporting companies, primarily to assist creditors in evaluating the credit quality of current and prospective customers. The information gathered by credit reporting companies is vast and seeks to cover virtually all U.S. consumer borrowing. To the extent that this information is complete, comprehensive, and accurate, it represents a potential new source of statistical data for the Federal Reserve on consumer credit markets and behavior. To evaluate the potential usefulness of these data, the Federal Reserve Board engaged one of the three national credit reporting companies to supply the records of a nationally representative sample of individuals. The data provide a unique opportunity regularly assembles or evaluates consumer credit information for the purpose of furnishing consumer reports as a "consumer reporting agency.'' Such companies are also called "credit bureaus'' or, as in this article, "credit reporting companies.'' Three national credit reporting companies—Equifax, Experian, and Trans Union Corporation— jointly have a dominant presence in the market for credit-related information on consumers. Each national credit reporting company seeks to maintain records for each individual, although, for a variety of reasons, all companies may not have the same information for a given individual. For more information on industry structure, see Robert M. Hunt, "What's in the File? The Economics and Law of Consumer Credit Bureaus,'' Business Review, Federal Reserve Bank of Philadelphia (second quarter, 2002), pp. 17-24.[endofnote.] rity number, was omitted from the data obtained by the Federal Reserve. The identities of the creditors, collection agencies, and other to profile the nature and content of information contained in credit reporting company records. Assessing the usefulness of these data as a potential source of information for the Board involves several tasks. This article is an initial step in the process; it examines the scope and content of the data, using a framework based on key aspects of credit evaluation. This approach is a natural way to begin the assessment process because the credit reporting companies' primary purpose for collecting these data is to facilitate credit evaluation. Future steps will focus on other aspects of this evaluation, including comparing measures of aggregate borrowing activity and credit quality derived from the credit reporting data with measures from other sources. The article begins with a brief description of the way the credit reporting companies compile and report their data and gives background on the regulatory structure governing these activities. This description is followed by a detailed look at the information collected in credit reports. The discussion of these data is divided along the lines of the major components of consumer credit report data—credit accounts; public records relating to the person's debt or payment obligations (bankruptcy filings, liens, judgments in civil actions, and so on); collection agency accounts; and inquiries regarding credit status. The distribution patterns of items such as account balances, credit utilization, and measures of payment performance by type of account and creditor are broadly described. Key aspects of the data that may be incomplete, duplicative, or ambiguous as they [note: 1]. The Fair Credit Report apply to credit evaluation are highlighted in the analysis. The article concludes with a discussion of steps that might be taken to address some of the issues identified. entities that reported information to the credit reporting company were also omitted. An index variable, unique to this dataset, allowed records of the same individual to be linked. A similar index variable allowed records of the same creditor (or other reporter) to be linked. [note: 2]. Identifying informatio Neither of these variables could be used to link to any publicly available information.[endofnote.] COMPOSITION AND SOURCES OF CREDIT REPORTING COMPANY RECORDS. Credit reporting companies gather information on an individual's experiences with credit, leases, noncredit-related bills, money-related public records, and inquiries and compile it in a credit record. A credit record generally includes five types of information: • identifying information such as the name of the individual, current and previous residential addresses, and social security number • detailed information reported by creditors (and some other entities, such as a medical establishment) on each current and past loan, lease, or non-creditrelated bill, each of which is referred to here as a credit account • information derived from money-related public records, such as records of bankruptcy, foreclosure, tax liens (local, state, or federal), garnishments, and other civil judgments, referred to here as public records bills.[endofnote.] • information reported by collection agencies on actions associated with credit accounts and noncredit-related bills, referred to here as collection agency accounts • identities of individuals or companies that request information from an individual's credit record, the date of the inquiry, and an indication of whether the inquiry was by the consumer, for the review of an existing account, or to help the inquirer make a decision on a potential future account or relationship. The consumer credit report, the basic product that the credit reporting companies provide to those seeking information about the credit history of an individual, is the organized presentation of the individual's credit record at the credit reporting company. Industry sources report that credit reporting companies issue approximately 2 million consumer credit [note: als, not couples or other family units. Therefore, an individual's credit report is separate and distinct from his or her spouse's report. If individuals are jointly responsible for payment on a loan, such as a mortgage, [note:a record of that credit account will appear in each individual's file, along with an indicator that it is a joint account.[endofnote.] 3]. Non-cr [beginningofbox:]A Summary of Consumer Rights under the Fair Credit Reporting Act The federal Fair Credit Reporting Act (FCRA) seeks to promote accuracy, fairness, and privacy of an individual's ''consumer report'' maintained by a ''consumer reporting agency''(or credit reporting company). The FCRA provides the following consumer rights and protections: • The right to be told if information in a consumer report has been used to take adverse action against a consumer. Any person who uses information from a consumer report obtained from a consumer reporting agency to take adverse action against a consumer—such as denying an application for credit, insurance, or employment—must tell the consumer the name, address, and phone number of the reporting agency that provided the consumer report, inform the consumer of the right to obtain a free copy of his or her consumer report within sixty days of receiving the notice, and notify the consumer of the right to dispute with the reporting agency the completeness or accuracy of the consumer report. • The right to see the contents of a consumer report. Upon a consumer's request, a consumer reporting agency must provide the consumer with all information in his or her file at the time of the request, except for credit scores, [note: the Federal Trade Commission's web site (http://www.ftc.gov).[endofnote.] and identify each person who has requested it recently. There is no charge for the report if an adverse action has been taken against the consumer because of information in a consumer report supplied by the reporting agency and the consumer requests the report within sixty days of receiving notice of the adverse action from the person taking the adverse action. • The right to dispute inaccurate or incomplete information with the consumer reporting agency. If a consumer notifies a reporting agency that his or her file contains inaccurate or incomplete information, the agency must investigate the items (generally within thirty days) by presenting to the furnisher or source of the information all relevant evidence submitted by the consumer, unless the agency determines that the dispute is frivolous. The furnisher or source must review the evidence, investigate the disputed information, and report its findings to the reporting agency. The agency must provide the consumer with a written notice of the results of the investigation, a copy of the consumer report as revised based on the results of the investigation, notice of the procedures used in the investigation (including the furnishers contacted), notice of the consumer's right to add a statement to the file disputing the accuracy or completeness of the information, and notice of the consumer's right to request that the reporting agency notify certain recent recipients of consumer 1]. For the complete text of the FCRA, reports of the deletion of the disputed information.[endofbox.] see 15 U.S.C. §§ reports each day. Access to the information and maintenance of each credit record is governed by conditions spelled out in the Fair Credit Reporting Act (FCRA) (see box ''A Summary of Consumer Rights under the Fair Credit Reporting Act''). Credit reporting companies gather the information that is in a credit record primarily from creditors, government entities, collection agencies, and third-party intermediaries (see box ''Sources of Credit Reporting Company Data''). Reporting entities submit information to credit reporting companies on a purely voluntary basis; no state or federal law requires creditors or others to report data to the companies. The FCRA prohibits a reporting institution from furnishing any information to a credit reporting company if the institution knows or consciously avoids knowing that the information is inaccurate, and it requires institutions to participate in the process of correcting errors that are identified by consumers. The national credit reporting companies attempt to collect comprehensive information on all lending to individuals in the United States, and the information each maintains is vast. Each of the three national credit reporting companies has records on perhaps as many as 1.5 billion credit accounts held by approximately 190 million individuals. Credit reporting companies receive information from creditors and others generally every month, and they update their credit records normally within one to seven days of receiving new information. According to industry sources, each of the three national credit reporting companies receives more than 2 billion items of information each month. Credit reporting companies use various techniques to process the high volume of information they receive. When a credit reporting company receives data from a creditor, government agency, or thirdparty provider, it first assesses its accuracy. If the data are found to contain errors, they are returned to the [note: 5]. See Consumer Data Industry Association (formerly, [note: the Associ6]. See ''About CDIA'' on the web s ated Credit Bureaus), Press Release, March 12, 1998.[endofnote.] Industry Association, www.cdiaoline.org.[endofnote.] [beginningofbox:]A Summary of Consumer Rights under the Fair Credit Reporting Act—Continued • The right to have inaccurate information corrected or deleted. A consumer reporting agency must remove or correct inaccurate, incomplete, or unverified information from its files, generally within thirty days after a dispute is filed. However, the reporting agency is not required to remove accurate data from a consumer's file unless it is outdated information that is required to be excluded from consumer reports. • The right to dispute inaccurate items with the furnisher or source of the information. If a consumer tells a furnisher of information, such as a creditor who reports to a consumer reporting agency, that specific information is inaccurate or incomplete, the furnisher may not then report the information to a reporting agency without including a notice of the dispute. • The right to have outdated information excluded from a consumer report. In most cases, a consumer reporting agency may not report negative information that is more than seven years old. However, there are certain exceptions: — Information about criminal convictions may be reported without any time limitation. — Bankruptcy information may be reported for ten years. — Information reported in response to an application for a job with an annual salary of more than $75,000 has no time limit. — Information reported because of an application for more than $150,000 worth of credit or life insurance has no time limit. — Information about a lawsuit, an unpaid judgment against a consumer, or record of arrest can be reported for seven years or until the statute of limitations runs out, whichever is longer. • Limits for access to a consumer report. A consumer reporting agency may furnish a consumer report only to a person with a permissible purpose recognized by the FCRA—usually to consider an application for credit, insurance, employment, housing rental, depository account, or other legitimate business need, or in accordance with the written instructions of the consumer. • The requirement for consumer consent to furnish reports to employers or to furnish reports containing medical information. A consumer reporting agency may not furnish a consumer report generally to a consumer's employer or prospective employer, or a consumer report containing medical information about the consumer in connection with a credit or insurance transaction, without the consumer's written consent. • The right to choose to exclude a consumer's name from consumer reporting agency lists for unsolicited firm offers of credit and insurance. Creditors and insurers may use reporting agency file information as the basis for sending unsolicited firm offers of credit or insurance. Such offers must include a toll-free phone number or address established by the agency from whom the creditor or insurer obtained the information and whom the consumer may call or write to have his or her name and address removed from future lists.[endofbox.] companies and some government agencies do not [beginning of box:] report to the credit reporting companies. Loans extended by individuals, employers, insurance comCredit reporting companies receive the information that panies, and foreign entities typically are not reported. is included in credit records from a wide variety of Second, complete information is not always prosources. They receive information on individual credit vided for each account reported. Sometimes creditors accounts, which makes up the bulk of the data that they do not report or update information on the credit maintain, from virtually all commercial banks, savings accounts of borrowers who consistently make their associations, and credit unions; from most finance comrequired payments as scheduled. Credit limits estabpanies; and from major retailers and many other busilished on revolving accounts are sometimes not nesses, such oil and gas companies. Some utility and reported. Also, creditors may not notify the credit medical companies also report on their accounts. reporting company when an account is closed or Credit reporting companies also gather information undergoes other material changes. from many agencies specializing in collections. These collection agencies may be acting on behalf of a claimThe information reported on credit accounts ant, or they may have purchased the rights to an account reflects each account's payment status and outstandthemselves. Collection agencies report information on ing balance shortly before it is forwarded to the credit accounts in collection, including many non-credit-related reporting company. Thus, the report is sensitive to bills, such as those associated with medical treatment or the date on which the information is forwarded. For services from communication or power companies, as example, a credit account reported to the credit well as some credit accounts. reporting companies on the day after a payment is Collection agency reporting does not represent a full made and posted to the account will show a smaller accounting of credit accounts that have gone to collecbalance than one reported to the companies on the tion. Many creditors do their own collections rather than day before the payment. using collection agencies. If these creditors report to the credit reporting companies, such collections will appear Although credit reporting companies endeavor to as updates to credit account files. However, if the creditor maintain high-quality data, the degree to which condoes not report to the credit reporting companies, then sumer credit reports are accurate, complete, or consisthese collection actions will not appear in the credit files. tent across companies is in dispute. A recent study, Credit reporting companies also gather information on for example, found evidence of inconsistencies in the public records, obtaining the information from the court information included in individual credit reports system, government entities, or third parties. Some of across the national credit reporting companies An these sources have computerized, comprehensive records; earlier investigation by a consumer organization sugothers keep only paper records that require laborgests that as many as one-third of all consumer credit intensive transcribing and recording. The former are reports may contain errors that could result in the easily obtained by credit reporting companies whereas the latter are not. Finally, information on inquiries is denial of access to credit. A study by Arthur Anderrecorded by the credit reporting companies as the inquirsen & Company argues, however, that such errors ies are made.[endofbox.] may not have material significance regarding access to credit. The Andersen study concluded that only a small proportion of individuals were denied credit on the basis of inaccurate information in their credit reporting entity for resubmission with the necessary reports. corrections. Otherwise, the credit reporting companies compile and reconfigure the newly received data Overall, research and creditor experience has conto create or update the record of an individual's credit sistently indicated that credit reporting company experiences. This reconfiguration can require a high information, despite any limitations that it may have, level of technical sophistication. For example, credit generally provides an effective measure of the relareporting companies have had to develop rules for deciding when to ignore slight variations in personal [note: identifying information and techniques for recognizreport by Consumer Federation of America and the National Credit ing that data items with the same identifying informaReporting Association, December 17, 2002.[endofnote.] [note: tion, such as name, may actually be associated with ers Lose,'' March 1998, on the web site of the U.S. Public Information different individuals. Research Group, www.uspirg.org/reports.[endofnote.] Although credit reporting company data are exten[note: March 12, 1998; also see Robert M. Hunt, ''The Development sive, they are not complete. First, information on and Regulation of Consumer Credit Reporting in America,'' Federal some credit accounts held by individuals is not Reserve Bank of Philadelphia, Working Paper no. 02-21, November 2002.[endofnote.] reported. Some small retail, mortgage, and finance Sources of Credit Reporting Company Data tive credit risk posed by prospective borrowers. Nonetheless, the industry and its critics alike recommend that consumers review their credit reports periodically, especially if they are in the market for new credit, if they have been denied credit, or if their creditor has changed the terms of an account on the basis of credit reporting company information. DESCRIPTION OF CREDIT REPORTING COMPANY RECORDS. Table 1. Individuals with credit reporting company records, by type of information Number Share of sample (percent) Sample size 248,027 100.0 Credit account Open and active account(note1) No active account Authorized user only(note2) 216,202 198,399 12,637 5,166 87.2 80.0 5.1 2.1 30,478 12.3 Type of information Public record Collection agency account Inquiry(note3) One of the three national credit reporting companies provided the Federal Reserve with the full credit records (with the exception of personal and creditor identifying information) of a nationally representative sample of individuals as of June 1999. Approximately 248,000 individuals included in the database of the national credit reporting company were randomly selected (table 1). The credit reporting company then provided the Board with the entire credit record of each of these individuals, excluding any identifying information. Each consumer credit record contained possibly more than 350 variables that described consumer credit usage and performance. The sample contains information on about 2.58 million credit accounts, a number that, by the authors' estimate, translates into approximately 1.43 billion credit accounts in the credit reporting company's full database (table 2, memo item). The authors estimate the aggregate balances owed on the credit accounts in the full database to have been $6.7 trillion as of June 30, 1999. Credit accounts were reported by thousands of organizations, including more than 23,000 creditors reporting currently (those providing data at the time the sample was drawn). Glenn B. Canner, ''Credit Risk, Credit Scoring, and the Performance of Home Mortgages,'' Federal Reserve Bulletin (July 1996), pp. 621-48.[endofnote.] company files of individuals are common to the three national companies, which have adopted common standards for the reporting and coding of information provided by creditors and others. Nonetheless, some differences remain across companies. Some small institutions do not report to all three companies, and coverage of public records may not be identical. Moreover, differences can arise because of the timing of the receipt and processing of information at each company within a typical reporting cycle. Finally, rules regarding the linkage of reports to a common individual and the treatment of items such as noncurrent data can vary across credit reporting companies.[endofnote.] files from the reporting company; the sampling frame excludes nonindividual accounts, such as small business accounts, and records of deceased persons.[endofnote.] None of the above 74,888 30.2 142,905 57.6 318 .1 MEMO: Credit account only Credit account and: Public record 63,674 42 25,905 55 28,534 46,496 138,584 25.7 * MEMO: 10.6 MEMO: * MEMO: 11.5 17.5 55.9 1 = Active accounts are those used within one year of the date the sample was drawn. 2.= Individuals who are authorized to use an account but not legally responsible for its payment. Generally, these accounts will not be used in a credit evaluation of the authorized user. 3.= Includes only inquiries made within two years of the date the sample was drawn. *=Less than 0.5 percent. Individuals have credit reporting company records for a number of reasons: having a record of a credit account (whether open and active or not), being an authorized user on a credit account, having a money-related public record, having a record of a collection action, or having had an inquiry about their credit circumstances. Approximately 87 percent of individuals in the sample had a record of a credit account, and 92 percent of these had an open and active account as of the date the sample was drawn (table 1). A very small share of the individuals in the sample had only a public record item or an inquiry. However, about 11 percent of the sample had a credit reporting company record only because of a collec[note: 10]. See tion action. Robert B. Avery, R The following discussion highlights the contents and scope of the data in the sample. A close examina[note: 11]. Most credit and other r tion of the data reveals that the information is not complete in all regards and at times contains duplications and ambiguities. These omissions and limitations may require users of the information to make assumptions about how to treat certain reported items in developing a credit profile for a consumer. The following discussion reviews the more important of these issues and quantifies their scope. Because [note: the information is now somewhat dated, some12].ofThis sample consists o the patterns presented here may not reflect current circumstances. Table 2. All credit accounts and balances, grouped by status and distributed by account characteristic Percent except as noted Account status: Currently reported: Account characteristic All accounts: share having characteristic Open Account status: Not Currently reported: Dormant(zero Account status: Notbalance): currently reported: Account status: Not currently reported: Unknown Dormant (positive or (zero balance): unknown balance) Closed: Share Share Share Share Share Share Share Share having of having of having of having of characteristic characteristic characteristic characteristic characteristic characteristic characteristic characteristic Type of credit: Revolving or credit union All accounts 62.7 1.8 30.5 71.2 1.9 38.0 36.1 35.2 39.6 44.3 29.9 Typeofcredit:Check 1.3 30.9 credit Typeof 29.1 credit:Banking 40.2 institution Typeofcredit:Financecompany 3.1 27.5 Type 10.1 17.9 of Type 1.9 34.4 of Type 4.0 36.4 of Type 43.7 69.6 of Type 7.9 55.4 of 95.4 2.6 25.1 4.7 23.8 1.9 4.7 26.6 6.1 4.4 24.8 2.1 4.1 19.0 5.7 29.3 33.2 28.5 27.9 22.7 29.9 100.0 100.0 31.8 100.0 42.3 100.0 18.2 100.0 7.8 34.9 32.3 49.3 .0 .0 39.2 45.8 28.6 4.8 78.9 21.1 80.0 20.0 32.3 30.1 74.8 Holder: 25.2 Joint 40.2 50.4 85.3 14.7 19.6 12.6 81.0 19.0 8.0 7.0 44.7 19.8 24.8 10.7 48.2 14.9 25.0 11.9 34.3 24.0 32.1 35.1 51.4 Creditor:26.9 Creditor:12.1 Retailer Creditor: 9.6 48.6 57.7 20.7 37.8 27.2 10.2 54.1 8.6 11.0 9.4 39.7 14.4 35.3 6.1 Finance 22.9 company9.0 or credit 24.2 7.6 17.6 Other 1 12.7 8.1 9.3 19.3 63.4 19.6 16.0 21.9 42.5 77.0 54.7 36.2 21.3 Date Date Date 1.9 5.5 18.3 74.3 10.0 24.8 40.2 49.7 3.2 opened: 5.8 14.7 opened: opened: 76.3 7.2 11.3 13.9 21.9 6.1 5.8 11.0 1 to 9.2 2 years 24.2 2 to 9.7 4 years 58.7 More than 47.2 31.0 13.8 10.4 16.7 28.1 67.1 17.3 6.1 5.9 3.6 68.7 39.8 18.7 11.2 4.1 Date Date Date Date 4.6 13.6 14.9 24.8 42.0 6.3 last 41.6 last60.8 last63.1 last 63.3 39.8 15.5 8.9 13.8 22.0 100.0 .0 .0 .0 .0 80.0 .0 .0 .0 .0 Date Date Date Date 18.8 14.8 12.9 20.6 32.9 7.8 7.0 85.3 3.1 8.0 88.8 12.8 36.7 33.1 9.2status 2 50.0 Payment Worst recorded:Minor 2 6.5 39.2 Payment Worst status recorded:No 84.4 41.9 4.3 1.0 25.7 68.9 2.1 1.6 63.5 32.8 15.1 50.7 78.4 15.1 2.7 .3 1.6 95.4 most-recent 1,428 100.0 454 9.6 53.8 1.8 4.6 .0 .0 27.6 27.3 14.9 51.5 1.5 20.8 36.7 3.9 41.1 credit:Retailer 23.7 1 13.8 credit:Other 7.0 credit:Nonrevolving 18.0 10.7 credit:Installment .0 26.3 credit:Mortgage .0 11.5 6.4 6.7 5.3 6.4 7.7 23.3 17.8 7.7 14.7 MEMO: Percent of revolving accounts missing credit limit Holder: Single Creditor: Banking institution Date opened: Less than 1 year Date last had balance: Current Date last reported: Less than 2 months Payment status 2 Worst recorded: Major derogatory At most-recent report: Balance remaining/ balance unknown: Major derogatory At ... 20.0 40.3last 61.5last 62.9last 63.3 last .0 had 14.2 had 11.7 had 23.6 had 50.5 .0 100.0 25.0 balance: 18.6 .0Less than 1 .0 year 20.5balance: .0 1 to 2.0years 25.7balance: .0 2 to 4.0years balance: 32.6 More .0 than 4 .0 .0 .0 25.9 reported: 30.3 12.1 reported: 24.7 22.4 reported: 29.4 39.7 reported:32.7 1.4 4.9 93.8 26.3 .0 12.9 .0 2.7 * 58.5 report:No 100.0 ... .0 .0 59.1 2 months 29.5 to 1 year 15.9 1 to13.8 2 years 13.7 2 to 7.7 4 years 11.3 More than 44.0 3.2 34.1 derogatory 12.7 10.2 derogatory 20.0 55.6 .0 .0 * 26.3 ... 32.5 4.8 62.7 balance .0 34.0 11.4 5.1 58.5 36.4 18.9 .0 ... MEMO: 3 Number of accounts (millions) MEMO:Percent of dollars ... 604 71.8 NOTE. Here and in subsequent tables, data are a statistically representative sample of a national credit reporting company's credit record data as of June 30, 1999; items may not sum to 100 because of rounding. 1.= Includes national oil and gas companies, travel and entertainment companies, utility companies, real estate firms, government entities, and smaller retailers. 2.= A minor derogatory status is a payment delinquency of 30 days to 119 days. A major derogatory status is a delinquency o f 1 2 0 days or more, a ... 1.2 259 .0 ... ... 111 27.0 payment plan, repossession, charge-off, collection action, bankruptcy, foreclosure, or adverse judgment by a court. 3.= National estimates based on the sample. . . .=Not applicable. *=Less than 0.05 percent. SOURCE. Here and in subsequent tables, author calculations using statistically representative sample provided to the Federal Reserve Board by one of the three national credit reporting companies. Personal Identifying Information. All credit reporting company files include personal identifying information that allows the companies to distinguish among individuals and construct a full record of each consumer's credit-related activities. Files always include the consumer's name (and known aliases), current and previous addresses, and social security number. Other identifying information sometimes found in credit files includes date of birth, telephone number(s), spouse's name, number of dependents, income, and employment information. These data are most often supplied by creditors; they are taken from credit application files. Information about an individual's lifestyle (for example, sexual orientation) or personal characteristics (for example, race or national origin) are excluded from credit reporting company files. One of the challenges that credit reporting companies face is constructing a unified credit record for a consumer. This challenge arises for a number of reasons. An individual's social security number, for example, may be recorded incorrectly on a loan application, or it may be transmitted incorrectly to the credit reporting companies. Problems also arise because the identifying information may not be current or because a consumer may have accounts under different names or addresses. For instance, a consumer may be inconsistent in using a full name in all applications for credit or may change names, perhaps after a marriage or divorce. Furthermore, accounts may be difficult to link to a given consumer if the consumer's address has changed. Credit reporting companies have established a series of protocols to address each of these challenges. Credit Account Information. Credit accounts constitute the bulk of the information in the typical individual's credit record, and thus the information on credit accounts represents the majority of the information maintained by credit reporting companies. Credit account records contain many details about each account (see box '' Credit Account Records''). Account Status. respect to whether the credit relationship is ongoing (an ''open account'') or whether the account is closed and cannot be added to by the consumer. Determining whether an account is open or closed is not always straightforward, in part because some creditors do not report all account closures to the credit reporting companies. Instead, in many situations, creditors simply stop reporting any information about an account, creating uncertainty about the current status of the account. These ''not currently reported'' accounts constitute a significant portion of all accounts in the credit reporting company data. For the discussion that follows, credit accounts are grouped according to their status and whether or not they are currently reported. An account is currently reported if either (1) its status had been reported to the credit reporting company within two months of the date that the sample of credit records was drawn or (2) it was last reported (at any time) to be closed and had a zero balance at the date of last report. All installment and mortgage accounts paid down to a zero balance are treated as currently reported and closed. With these definitions, accounts fall into one of four mutually exclusive groups, two of which are currently reported and two not currently reported. • Open credit accounts are currently reported and are not reported as closed. These include accounts that a consumer can use to incur additional debt, such as an open-end revolving account, and closed-end accounts that the consumer is paying down on a scheduled basis, such as a mortgage or an installment loan. • Closed credit accounts are currently reported (as defined here) and are reported as closed. Closed accounts cannot be used to incur additional debt. Virtually all these accounts have been fully repaid and have a zero balance, although a positive balance remains on a small number of closed revolving accounts. • Dormant accounts are non-installment, nonmortgage accounts that were last reported as open with no outstanding balance but for which the last reporting was more than two months before the sample was drawn. These accounts are inactive, but from the data, one cannot determine whether they are open or closed. A basic element of credit reporting company data is information on the status of each account with site of the Consumer Data Industry Association, • An unknown accounts category contains all other accounts that are not currently reported. All these accounts were reported as having a balance at their last reporting date. The category includes installment, [note: 13]. For mortgage, and to a smaller extent, revolving accounts www.cdiaoline.org.[endofnote.] further details, see [beginning Credit account records include information on each ''trade line'' or credit account in a consumer's credit files. They include the following: Account Dates. • The date the account was opened • The date the account was closed (if applicable) • The date the account was paid down to zero if the last reported balance is zero • The account verification date (the date on which information on the account was taken) • The date the account information was recorded by the credit reporting company. Account Balances. • Account balance on the verification date (if any) • The historic high balance (For mortgage or installment loans, this is generally the original balance.) • Credit limit (the maximum amount that can be borrowed for revolving or open accounts) • Amount past due (If the account is delinquent, this is the amount that was overdue as of the verification date.). Payment Performance. • Payment status at the last report. This can have seven values: 1. unknown or too new to rate 2. satisfactory or paying as agreed 3. 30 to 59 days past the due date (minor derogatory) 4. 60 to 89 days past the due date (minor derogatory) 5. 90 to 119 days past the due date (minor derogatory) 6. 120 or more days past the due date (major derogatory) 7. other major derogatory instances (repossession, charge off, collection, judgment, bankruptcy, foreclosure, paying under a wage earner plan). • Payment status pattern for the previous 48 months (not given for a major derogatory) • Dispute code (indicates if items in the account are under dispute) • Remark codes (for example, notations for types of payment problems and reasons for closing accounts). that may have been paid off but lack a final record of disposition. It also includes accounts that were sold or transferred to another creditor or collection department or agency but not reported as closed by the selling or transferring institutions. Finally, it includes accounts that have encountered such severe payment problems that the creditor no longer reports the account. of box:] Account Description. • Account ownership (individual, joint, authorized user, co-signer) • Type of creditor (commercial bank, savings institution, finance company, credit union, government entity, retailer, and so forth). • Type of account — Closed end—a lump-sum loan that the borrower repays over time according to an agreed-upon schedule • Mortgage—a special type of installment account that is secured by a primary residence or other residential real estate such as a rental or vacation property • Installment—nonmortgage accounts, such as auto loans, that typically involve fixed monthly payments that fully amortize the total amount borrowed over the term of the loan, often secured. — Open end—consumers can borrow from time to time at their discretion, typically up to some pre-authorized limit • Revolving—typically unsecured accounts that permit considerable flexibility in the amount that must be paid back in any given billing cycle, typically a month, such as a credit card account • Nonrevolving charge—the account holder may borrow funds for a short period (typically a month) and must repay in full at the end of this period • Check credit—a special form of revolving account, typically not accessible by a credit card, that includes personal lines of credit and overdraft protection on deposit-related accounts, such as a checking account. • Loan purpose or type (for example, credit card, charge account, automobile loan, student loan, or FHA-insured mortgage) • Lender subscriber code.[endofbox.] [note: by real property, is typically structured more like a line of credit or revolving account. Some home equity lines of credit are reported as mortgages; others are often reported as open-end revolving accounts.[endofnote.] The status was currently reported for about 74 percent of the accounts in the sample. [note: records of a nationally representative sample of individuals. However, raw account distributions in such data are not proper estimates of Of these accounts, 57 percent were closed; the remainder were open. Because these accounts were currently reported, users of the data did not have to make assumptions about their current status. The status of the remaining credit accounts was not currently reported, and thus assumptions had to be made in order to use the data. Among the accounts that were not currently reported, 70 percent were dormant. For these accounts, the only issue a user of the data had to address was whether the account could be used by a consumer. The accounts in the unknown category, which comprised about 8 percent of all the credit accounts in the sample, present a particularly vexing problem for users of the data because this category includes accounts that had a positive or unknown balance at the date of last report. This category includes accounts that may have been sold, transferred, or paid off but are not reported as such. Also included are accounts, particularly derogatory accounts, that are still outstanding but on which the lender has ceased reporting. Types of Accounts. Credit reporting companies ask creditors to place each credit account into one of four broad groupings: two types of open-end account (revolving and nonrevolving) and two types of closed-end account (installment and mortgage). Within these four categories, further distinctions can be made by users of the data based on other characteristics—for example, the reported purpose of the loan or the type of creditor. Revolving accounts were by far the most common type of credit account found in the sample, comprising about 63 percent of all credit accounts and about 71 percent of all open accounts (table 2). Although revolving accounts made up the largest share of accounts, approximately 28 percent of these accounts were dormant. Installment accounts composed the second largest share of credit accounts, representing approximately 27 percent of all accounts in the credit reporting company files. Much less frequently found in these files are records of nonrevolving charge accounts and mortgages. Given the relatively short terms to maturity of most installment loans, it is not surprising to find that installment accounts composed a disproportionate share of all closed accounts in the sample of credit records. the distribution of characteristics of a representative sample of credit accounts. This disparity occurs because many accounts, including joint accounts or accounts with co-signers, are contained in the credit records of multiple individuals. An adjustment for such multiple reporting was made in computing the statistics reported in this article to make them representative of all credit accounts.[endofnote.] Types of Creditors. Credit reporting company data include the identities and a type classification of the credit provider for each account. For purposes of this analysis, the creditor type classification was used to group accounts into four categories: banking institutions (commercial banks and savings associations), finance companies and credit unions, retailers, and ''other.'' The retail category includes department stores and jewelry, computer, camera, and sporting goods stores. ''Other'' includes national oil and gas companies, travel and entertainment companies, other retailers, and various creditors such as utility companies, real estate firms, and government entities. Banking institutions were the largest source of credit accounts recorded in the credit reporting company files, accounting for nearly 45 percent of all the credit accounts and 48 percent of open accounts. The second largest source of credit accounts was retailers. The distribution of accounts by creditor type varies some by account status and is largely a function of the types of accounts that creditors offer. For example, finance companies and credit unions offer primarily installment accounts, which are more likely than revolving accounts to have been paid down and closed. Banking institutions and retailers offer relatively large numbers of revolving accounts, which tend to be used from time to time and to retain their open status. Date Account Opened and Last Had Balance. Most credit accounts were several years old when the sample was drawn; only 8 percent of the credit accounts recorded in the files were less than one year old, and nearly two-thirds had been opened at least four years previously. Among accounts that were known to be open, about 20 percent had been open less than one year, and nearly 58 percent had been open four years or less. Not surprisingly, a large proportion of dormant and closed accounts were at least four years old. Only about one-third of accounts currently had a balance when the sample was drawn. However, twothirds of the open accounts showed a balance. Overall, 28 percent of accounts had not had a balance within four years of the time the sample was drawn. More than 50 percent of the dormant accounts had not had a balance within four years. Payment Status and Balances Owed. The credit account records include information on the extent of consumer payment problems and the amount owed on an account. Nearly 70 percent of all accounts and 33 percent of accounts currently reported as open showed no outstanding balance at the time of most recent reporting. Among accounts with balances, more than one-fourth of the balance dollars at last date of reporting were associated with accounts in the ''unknown'' category (table 2, last row). The large share of outstanding balances that fell in the unknown category highlights the importance of decisions about how to treat accounts in this category when using the data for credit evaluations or other purposes. With respect to payment performance, accounts were sorted into one of three categories: accounts with no ''derogatory'' (no record of late payment), those with evidence of a ''minor derogatory'' (a late payment of 30-59, 60-89, or 90-119 days), and those with evidence of a ''major derogatory.'' Credit accounts categorized as major derogatory include any account that is delinquent 120 days or more and all credit accounts reported as associated with bankruptcy, foreclosure, repossession, civil judgment, collection, charge-off, and so forth. The analysis presents two ways of describing payment history. First, accounts are sorted by their worst recorded payment problem. Second, accounts are sorted by their payment status at the time the credit reporting company last received information on the account (their ''status at most-recent report''). As discussed below, both worst payment problem and status at most-recent report are weighed heavily by creditors when conducting credit evaluations. Worst payment problem. More than 85 percent of all accounts had no record of a payment problem. The remaining accounts were split about evenly between those with, at worst, a minor derogatory and those with a major derogatory. Patterns differ sharply between open and closed accounts. Only about 3 percent of open accounts had a major derogatory status, whereas 9 percent of closed accounts had this status. This difference results from the general industry practice of closing accounts that experience severe payment problems. More than one-third of the accounts that had a major derogatory were not cur- closed-end loans, such as installment loans, must be charged off after 120 days of delinquency. Open-end loans are required to be charged off after being delinquent 180 days or more. See Federal Reserve Board Supervisory Letter SR 99-5, February 18, 1999.[endofnote.] rently reported and were last reported with a positive or unknown balance. Status at most-recent report. About 5 percent of all accounts were reported as having payment problems at the time of the most-recent reporting; most of the accounts with payment problems were reported as having a major derogatory. The incidence of accounts exhibiting a major derogatory at last report differs from that of accounts that ever exhibited a major derogatory because more than half the accounts with a historic major derogatory had been closed and showed a zero balance. Interpreting the Credit Account Data. As the preceding discussion highlights, credit reporting company data provide a wide-ranging and comprehensive picture of accounts that reflects individuals' experiences with credit. However, the discussion also reveals that, in some instances, the data are not sufficiently up-to-date or complete to permit a clear understanding of an account's current status. The following sections present a more detailed look at the information in the credit reporting company files, focusing on items most pertinent to credit evaluation. Credit evaluators rely on a number of factors in assessing the credit quality of individuals. The exact weight attached to specific factors varies across evaluators and their different models, but the factors generally fall in three broad areas: the level of a consumer's indebtedness, the payment history, and credit account characteristics. Level of Consumer Indebtedness. When evaluating credit, creditors consider the type and amount of debt a consumer has and the proportion of available credit he or she has in use (credit utilization). For revolving accounts, credit utilization is measured as the proportion of available credit in use (outstanding balance divided by credit limit). For mortgage and installment accounts, credit utilization is generally measured as the proportion of the origi[note: original motivation for its collection, but other uses of the data exist and may emphasize different items.[endofnote.] [note: 15]. Regulatory [note: guidance evaluation, including the relative weights given to different factors, see the description on the web site of Fair Isaac and Company, www.myfico.com. Also see Avery et al., ''Credit Risk, Credit Scoring, and the Performance of Home Mortgages.''[endofnote.]