Although credit evaluators use information on credi-
tor inquiries to predict future loan performance, the
value of this information is limited in an important
way. Ideally, credit evaluators would use such infor-
mation to distinguish the consumers who are seeking
multiple loans to greatly expand their borrowing from
the consumers who are shopping for the best terms
for a single loan. However, the information that
evaluators need to make this distinction—that is, acode that identifies the type of credit sought from
the inquiring lender—is generally not available in
inquiry records (it is missing from 99 percent of
the inquiries in the Federal Reserve sample). Conse-
quently, credit evaluators must use less reliable rules,
potentially harming consumers who are simply shop-
ping for a single loan by failing to distinguish them
sufficiently from consumers who are seeking an
excessive amount of credit.
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Although credit evaluators use information on credi- tor inquiries to predict future loan performance, the value of this information is limited in an important way. Ideally, credit evaluators would use such infor- mation to distinguish the consumers who are seeking multiple loans to greatly expand their borrowing from the consumers who are shopping for the best terms for a single loan. However, the information that evaluators need to make this distinction—that is, acode that identifies the type of credit sought from the inquiring lender—is generally not available in inquiry records (it is missing from 99 percent of the inquiries in the Federal Reserve sample). Conse- quently, credit evaluators must use less reliable rules, potentially harming consumers who are simply shop- ping for a single loan by failing to distinguish them sufficiently from consumers who are seeking an excessive amount of credit.