A recent report indicates that 21% of all Americans have an error in their credit scores. It also reported that 5% of Americans have serious errors in their reports.
Ho, hum. What else is new?
If this report were not the case, I would not believe any of the statistics regarding the credit reports. Anybody who takes such a statistic seriously is a statistical novice.
Why do I say this? Because this news report on credit reports is conformable with what is known as Pareto’s law. Pareto’s law is the famous 20/80 distribution. In any large system, 20% of the factors contribute to 80% of the success of the organization. Simultaneously, a different 20% of the factors contribute to 80% of the failures of the organization.
Of course 21% of the credit reports have an error. Of course 5% are seriously erroneous. What is 20% of 20%? Four percent. That is very close to 5%.
We are told that 5% of the errors in the credit reports are serious. Of course they are. If they were not, you would figure that the credit reports are seriously inaccurate. You would have to conclude that somebody is deliberately tampering with the figures.
I hereby announce something else. Approximately 1% of the credit reports have catastrophic implications for the people involved. Why do I know this? Because 20% of 20% of 20% is .8%. That is close enough to 1% to cover my estimate of 1%.
It never ceases to amaze me how few people understand the universality of Pareto’s law. They do not expect it. They seem astounded when a report is issued that states that Pareto’s distribution applies.
Google News reported several stories on this report, as if there were anything significant about this report on credit errors. Nothing is significant about it. Had the statistics involved been different from those reported, that would have been significant. That would have called for special investigation of the data behind the report. Either the data were being faked, or this was some kind of miracle or catastrophe.
If somebody had reported that 10% of the credit reports have errors in them, I would have regarded this as newsworthy. In fact, I would have regarded as newsworthy if 15% are filled with errors. A miracle! Let us rejoice!
There is no doubt that 25% would indicate a very serious situation. If it had been 30%, it would have indicated the need for some kind of urgent reform of the credit-reporting systems. But any system that produces errors for 20% of the people involved is operating smoothly. It is business as usual. Anyone who spends a lot of money to reform such a system is wasting a lot of money.
If you are in the 20%, try to get it fixed. If you are in the 5%, you must get it fixed.
On some list, you are in the 20%. That is normal. Fix it if you hear about it. Otherwise, forget about it.