The Lack of Payment Information from
Financial Institutions Is Causing Problems with Credit Scores

Abstract

This article explains what happens to the credit score model when financial institutions do not send payment information on their customers’ credit cards and lines of credit. It explains that this lack of payment information brings three significant problems to the credit score calculation: incorrect credit scores, double reporting, and the credit score game. Because credit scores are a major determinant of how credit agencies calculate risk on asset-backed securities, correcting this problem would improve the risk predictability of those asset-backed securities. Credit bureaus can correct all three problems if they receive information on a consumer’s payment amount from financial institutions, but financial institutions might be unwilling to send the information because they would be giving up too much information about their customers. A recommendation to solve the problem of giving up too much information is to have credit bureaus handle the payment amount data field as private information so that financial institutions can send the data without having to worry about giving up competitive information.