25% of Credit Information Is Flat-Out Wrong? How Consumers Are Getting Screwed
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- Fewer credit reporting mistakes: With more competition, neither consumers nor banks will have to tolerate error-riddled credit reports, as they could simply switch providers if a particular company is underperforming. That threat would provide ample incentive to emphasize accurate reports and would usher in a race to the top, rather than allowing the current middling practices to persist.
- More predictive credit scores: Much like the above, with more actors involved in credit scoring, companies will have to step up their game in order to garner business. Those with the most advanced credit scoring models will ultimately win out, and banks will have fewer unexpected defaults to deal with.
- Better product terms: Without the need to factor as big of a revenue cushion for unexpected defaults into their product terms and pricing, banks will be able to offer more attractive products and services at lower prices. That will obviously save us a pretty penny. Banks will also be healthier financially, which will have a positive impact on the economy.
- Innovative products and services: It’s no secret that many of the most important everyday inventions stem from research. Expanding access to the credit reporting space could have a similar effect, as companies would likely experiment with new applications and products designed to make sound financial management easier. That’s got to be of interest for the 80% of people who say they could use professional financial assistance, according to the National Foundation for Credit Counseling.
- A healthier economy: When you look at all of these things in concert – more accurate credit reports and scores, fewer unexpected defaults, and a more financially capable citizenry – there’s no question that the economy would benefit from increased competition in the credit reporting and scoring industry. We could certainly use it too, considering the struggles of the past few years and the still-high unemployment rate.
Ultimately, credit reporting inefficiency isn’t something most people think about unless they have bad credit themselves, and then they’re perceived as whiners who can’t own up to their own mistakes. In reality, however, the credit reporting and scoring industry is deeply flawed and desperately in need of regulatory attention, and the benefit of fixing it would be all of ours to share.