On the Record

The Economic Power of Uncertainty: The Role of Consumer Credit Bureaus

Matt Fellowes

At the Federal Reserve Board’s Forum on Credit Scores, Matt Fellowes delivered a speech on the role of consumer credit bureaus in reducing economic uncertainty. Following is an excerpt from this speech; use the links below to access the complete text and presentation slides.


In the invitation to speak today, the Federal Reserve asked us to focus on what research can tell us about credit scores and reports. And, because these are forecasting tools, I’m going to forecast right now that I think this day will actually be much more about what the research doesn’t tell us, than it is about what we do know. It is shocking how studded the extant work is with uncertainty and hedging phrases like “possibly,” “assuming,” “hypothetical,” “tentative.” You can’t help but get the impression that what we don’t know is as important, maybe even more important, than what we do know.

With that as context, I want to focus my comments today on two points related to the major economic consequences of the relationship between credit scores and uncertainty.

The first point I want to make is that credit scores and reports have substantially reduced uncertainty that numerous types of businesses have about consumers, which has resulted in economic growth and prosperity. That is particularly clear in credit markets. Prior to these products, borrowers and lenders in our economy were essentially standing around in a dark room, only able to interact with and be knowledgeable about people that they were located near to.

Credit reports and scores were part of a number of innovations that turned the light on in that room, so that suddenly lenders could see many more borrowers, which substantially reduced the uncertainty they had about the likelihood they would be able to make future payments on loans.

The chief economic impact of that reduced uncertainty has been to support economic growth and the historic democratization of credit that occurred in the 20th century, particularly in the last couple of decades. That happened because once lenders could see more borrowers they saw millions of Americans that looked liked profitable customers for credit and loan products. That led to more businesses and consumers having access to more money, which meant more spending, more investing, more jobs…more economic growth.

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