January 23, 2009

There is no better way to say it than what Congress stated in the Fair Credit Reporting Act.

“The banking system is dependent upon fair and accurate credit reporting.  Inaccurate credit reports directly impair the efficiency of the banking system, and unfair credit reporting methods undermine the public confidence which is essential to the continued functioning banking system.”

Congress’ view is that proper credit reporting is positively correlated to the health of the economy.  The US economy is based on consumers using credit to spend.  A lack of credit brings the economy to its knees.

This has taken root in the last few month in what is known as a credit crisis.  The lack of credit in the market has caused the economy slip into recession.  It is not due to unfair or inaccurate credit reporting but practices like sub prime lending.  The truth about sub prime lending is that looking at the information reported about individuals in their credit reports, they should not have received a loan.  The flaw lied in lending practices and not the actual credit reporting.

Inaccurate reporting would have a more wide spread effect.  It would seep its way into everything.  As there is less faith in the reporting system, lenders would rely less on the information provided by the credit bureaus.  Today has been the effect that the information provided is accurate, but lending requirements were lax.  Less faith in reporting would make lending almost impossible.

This current credit crisis almost serves as an example of what could happen if there was inaccurate reporting by the credit bureaus.  The economy would be severly hurt as it is now.  Consumers need credit.  Thier spending keeps the US economy functioning.