Any bank's credit application evaluation depends on the creditworthiness of the candidates. They so depend on credit reports and credit ratings from the three primary credit agencies of American consumers: Equifax, Experian, and TransUnion. These reports provide details on a person's credit record including credit accounts, credit repayments, bankruptcy, collection, and any other credit activity.
Banks and other lenders utilize both of the two credit reporting companies, Equifax and TransUnion, to help in decision-making. Having said that, one disadvantage of the debate's details is considerable uncertainty about whether individual banks underwrite loans using Equifax or TransUnion. The fact is banks may evaluate any application using credit information from both agencies.
Some key points:
- Mainly, no law mandates that banks remove reports from a particular credit reporting bureau. Loan companies can get credit reports of any client from any bureau of their choosing. This means that while evaluating credit applications, a bank can rely on either Equifax or TransUnion reports.
- It is important to note that many banks in fact will pull credit reports from more than one bureau to get a full picture of the person’s financial standing. Even though it is more expensive to pull several reports, when lenders can receive credit reports from two or three different agencies, this enables them to factor in additional credit data to their decisions.
- Self-compiled by FICO and used by 99% of lenders in the United States to interpret credit reports, the automated underwriting system of the Consumer Financial Protection Bureau states that it approves or denies credit scores based on analytical algorithms that consider credit reports. The FICO scores are derived from credit history particulars from all three agencies and therefore even when a bank checks only one report it uses the particulars from several bureaus in arriving at the FICO score.
- It is more common for large national banks to subscribe to reports from all three of the major bureaus. However, some of the smaller community banks can rely only on Equifax or TransUnion as it could be cheaper in terms of report fees. It is also important to note that while the combined use of bureau reports is relatively common, credit unions appear to use single bureau reports even more often.
Therefore, there is no centralized and standardized form used across the banking sector as a whole. Equifax and TransUnion reports are usually used by banks when considering issuing credit. As for the multiple reports, it is also noted that large banks can afford to pull multiple reports from both agencies, while smaller lenders may prefer Equifax, TransUnion, or just one to minimize costs.
Thus, it may be possible for certain discrepancies, and even information gaps, to be present between bureau reports for a given consumer. This is why when one is filling in the details at different agencies then the various details will give the best picture of someone’s finances. Pre and post-bureaus illustrate why exclusive dependence on Equifax or TransUnion has limitations in the underwriting process. As the latest statistics reveal around 26 million Americans need improvement each year because of big mistakes in credit reports, more data from more agencies can help the banks make better lending decisions.
As far as the content of the reports each agency offers, Equifax and TransUnion have a lot in common as to where they get consumer credit information. The particular information that is monitored on these reports is also similar and includes accounts and balances, account history, credit limits, credit inquiries, collection, public record information, and personal information.
A good portion of the underlying information originates from data providers that are common with other institutions such as banks, mortgage companies, credit card companies, auto finance companies, cell phone companies, and insurance companies. These entities report to the credit bureaus about the customer’s accounts such as the accounts that the customer has applied for, opened, made payments on, or have missed payments, maxed out, or closed.
The first is that TransUnion gives added options on payday loans that are recognized as higher-risk credit while Equifax may have more accounts in its files. However, where coverage is concerned, the coverage database of both agencies is almost similar.
Given the fact that most banks use the Equifax and TransUnion reports during the lending process, consumers should regularly conduct credit checks with the two bureaus to clear any mistakes before submitting a credit application. This way it is possible to avoid situations when the decision is made with the help of outdated or inaccurate financial portraits. Even if a person is not actively applying for new credit, it is wise to keep an eye on reports from both Equifax and TransUnion since errors that depreciate scores with major creditors can occur at any time.
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