Introduction Whenever one applies for a line of credit including a home loan, car loan, credit card, or any other type of loan, a detailed report is pulled from one or more of the credit bureaus, Equifax, Experian, or TransUnion. These reports provide creditors with an idea of your credit history and whether or not you should be repaid the debt.
Although many lenders use details from the three credit bureaus, some rely on credit information from Equifax alone. While it is unusual for a lender to pull only Equifax reports, there are a few possible explanations for why they may do so.
Some of the reasons why lenders may use Equifax Only include;
Specialized Credit Products
There are what can be referred to as niche credit products that are offered by some lenders which attract a higher risk assessment. For instance, lenders who offer credit to subprime borrowers or those with special situations may decide to use Equifax data alone in making their decisions. This enables them to sharpen their underwriting models, thanks to the consistent results that are evident in their audited financial statements. Thus, these lenders can continue relying on one credit bureau, which will help consolidate their procedures.
Region or Industry Focus
Some small specialized lenders who focus on lending within specific regions or sectors may only pull Equifax credit reports. Equifax may have a larger sample of data in that region or in that industry of the typical credit records. Through the extraction of reports from one source, these lenders can build specializations in assessing distinct types of borrowers.
Cost Savings Lenders often rely on a tri-merge report that includes information from the three major credit reporting agencies. However, it is worth paying more for receiving these reports from all three bureaus, although this option can be more costly. Hearing some lenders choose Equifax as the single source of credit data, there are still some key points worth considering: Small-scale lenders willing to keep expenses as low as possible might decide on using Equifax data only.
Specific Partnership Arrangements This indicates that Equifax aggressively markets its products and services to lenders within the country. Sometimes they may charge lower prices or provide some additional benefits to the lenders in exchange for their one-stop shopping at Equifax services. If these offers are beneficial enough, lenders may opt to only pull Equifax credit reports.
Other Kinds of Creditors Who Consider Equifax Only While any lender could decide to rely solely on Equifax for credit reporting needs, there are a few specific types that commonly use only Equifax data:
Payday and title loan companies
Because payday and title loans are considered high risk due to the small and short loan amounts, the personal, temporary nature of these loans often dictates a unique underwriting system reliant on one credit bureau, Equifax.
BHPH or Buy Here Pay Here Auto Dealers
BHPs give car loans to credit-shy people due to their ability to offer auto financing. To keep their underwriting models parallel, most of them only access Equifax reports when offering credit to buyers.
Credit Unions
The credit unions with less than $100M in assets that operate with a limited field of membership by employer, community, or association may decide to pull only Equifax credit reports. They can create lending models that leverage information from a single credit bureau due to the specific type of membership they have.
Online Mortgage Lenders
Some newer online mortgage lending companies that would like to avoid high expenditures that are related to the use of a dual reporting bureau may obtain incentives to use Equifax only. They can achieve this because of the lower costs they accrue as a result of the savings which enable them to offer lower rates that borrowers are likely to embrace.
Peer-to-Peer and Marketplace Lenders
There are lending organizations like LendingClub that make loans go directly to both the lenders and borrowers. Some of the peer-to-peer lenders have eliminated credit scores from risk assessment altogether and are only relying on Equifax data to cut costs in their business models.
The potential disadvantage of Equifax-only lending As suggested in the previous section, there are several potential downsides of Equifax-only lending that consumers should be aware of.
While relying exclusively on Equifax credit reports can have advantages for some lenders, there are also a few potential downsides to consider:
- Some applicants may be rejected when the loan would have been approved if information from all three Equifax, Experian, or TransUnion bureaus was reviewed because borrowers have wrong or disputed data at Equifax.
- Subprime risk models are based on data from just one credit bureau and might have lower predictive power as opposed to tri-merge report models. Default rates could be higher: Default rates in the current portfolio could be higher which implies that some of the loans that are currently nonperforming would perform poorly if new loans are made.
- Candidates have no way of correcting credit reporting mistakes that lead to their rejection if only one bureau is relied on. These matters can only be addressed to Equifax since they are the ones who handled and initiated them.
- If Equifax is missing information another bureau would have reported, there are chances the lender may not come across potentially creditworthy borrowers. Loan approval may be reduced.
That said, isolated cases of exclusive reliance on Equifax for lending do exist; however, the majority of lenders still incorporate reports from the three credit bureaus. When checking the data, the borrower repayment risk is most accurately illustrated with data from several sources combined. Thus, for those lenders who focus on certain niche products or clients, reliance on Equifax data may indeed be a simple and efficient way of credit decisions.
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