13 Mar 2012

Credit reporting: Towards better access to credit and protection for consumers

Elina Pyykko

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Credit reporting addresses the fundamental problem of credit markets: information asymmetry between borrowers and lenders. By providing an efficient mechanism for evaluating risk, accurate credit information enables credit markets to function more effectively and at a lower cost than would otherwise be possible. Regulators and financial market actors therefore increasingly recognise the value of credit-reporting systems for the improved management of credit risk and as a tool to enhance access to credit, thereby contributing to sustainable economic growth and financial sector stability. When assessing the need for more regulation, however, this ECRI Commentary notes that credit-reporting systems are networks combining different industries for the benefit of more efficiency and security, and excessive regulation can work against the very objective of stable and efficient financial markets

The author, Elina Pyykkö, is a Researcher at the European Credit Research Institute within CEPS in Brussels.