The Policy & Economic Research Council (PERC) recently released a report that found that data suppression and deletion policy proposals put forward in Congress in recent months to alleviate pandemic-related consumer financial hardships are more likely to harm consumers than to help them. The report reviewed previous examples of data deletion, where adverse information is removed from an individual’s credit report, and found that lower-income and minority consumers were most negatively impacted by these policies. Instead of implementing suppression and deletion measures, the study recommends policymakers advocate for adding on-time payments for telecommunications, cable and satellite TV, and broadband accounts.
Policies to delete negative data have proven to be harmful to consumers, particularly those in lower-income households. A simulation of the impacts of deletion that PERC cited showed that while credit scores may improve in the short-term, credit approvals decline, with approvals falling 37% for those from the lowest income households.
On the other hand, PERC’s data has shown that consumers are positively affected by the inclusion of alternative data in the credit reporting system – an idea that TransUnion has long championed. PERC’s research has shown that adding positive payment data can increase approvals – in one model, they found approvals increased by 21% for the lowest income bracket. This analysis highlights that while low-income individuals, many of whom have been financially impacted by the COVID-19 pandemic, are most hurt by deletion, they are also most positively affected by the inclusion of alternative data.
A previous study from PERC and the U.S. Department of Housing and Urban Development (HUD) aligned with TransUnion’s research to demonstrate that when rent payments, another form of alternative data, of HUD-assisted consumers are reported to credit reporting agencies, 100% of residents who were considered credit invisible at the time of application became scorable a year later. That same TransUnion analysis also found that subprime consumers who make timely rental payments may see their credit score increase by as much as 26 points over the same time period.
These notable findings further solidify TransUnion’s long-held belief that working toward fuller and more accurate pictures of consumers will lead to greater economic opportunity for all Americans. As Congress and state governments work to protect the health of Americans during the pandemic, along with the health of the U.S. economy, TransUnion is focused on being a part of that solution. Our analysis has consistently shown that calls for deleting or suppressing data will cause more harm than good to consumers, especially those most at risk of financial hardship. However, including more data from alternative sources like telecommunications or rent payments, can help consumers gain access to the credit they need. Proliferation of alternative data in credit reporting will lead to a healthier and more inclusive credit ecosystem during COVID-19 and help drive the post-pandemic economic recovery.