Credit reports from three credit bureaus: Experian, Equifax, and TransUnion are used by banks when considering loan applications. However, many banks have their credit bureau of choice that they use as their primary source of credit information.
The credit bureau that a bank uses can depend on several factors:
Geographic Location Lenders seem to prefer the credit bureau that has the longest file history in the geographical region. For instance, the West Coast-based banks frequently tend to use the Experian score whereas Equifax is used often by the banks located in the Southeast. This helps them to have a clear view of the applicant’s credit profile.
Existing Relationships In cases where a bank has direct connections with one of the credit bureaus they are likely to rely more on credit scores from that credit bureau. Establishing relationships with the credit bureaus is a time-consuming and expensive process and as such, banks rely on partners already in their ecosystem.
Specialty Scores The three main agencies that offer FICO and Vantage scores also have their unique scores derived from the same models. These specialty scores may also be used by large national banks in addition to or instead of the general scores.
Industry Standards Certain banking industries also prefer to work with certain credit bureaus more than others. For instance, mortgage lenders often use Experian together with its FICO Mortgage Score when approving home loans. Student loan providers also rely on Experian credit report information when making credit decisions.
“Where most lenders pull credit reports from more than one credit bureau, federal law permits the use of information from any bureau in making credit decisions. ” The three most common scenarios for which reports banks order are: The three most common scenarios for which reports banks order are:
- Equifax Only According to Consumer Financial Protection Bureau researchers, a quarter of the banks studied relied solely on Equifax reports to make lending decisions. It is also noteworthy that many regional and community banks appeared to favor Equifax, possibly because of longstanding data-sharing collaborations or broad geographic reach. Equifax files contain complete national data, which makes it enough for most banks not to use other scores from other agencies.
- Tri-Merge Reports About 49 percent of lenders analyzed by the CFPB utilized credit data from all three credit bureaus – Equifax, Experian, and TransUnion. Tri-merge reports incorporate information from all three databases in a single report and provide lenders with the best insight into the applicant’s credit history. Extra effort may be needed in the event of material differences across the different reports as a way of establishing the accuracy of the information.
- Experian Only CFPB research indicates that approximately twenty percent of lenders relied only on Experian information in assessing borrowers’ creditworthiness. Experian, being the largest credit bureau that has detailed data on more than 220 million Americans, probably offers sufficient data for many banking choices. Experian also provides more targeted products of industry-specific FICO scores of mortgages and auto loans that particular lenders would find appealing.
- Although most banks use data from a variety of sources, relying primarily on one credit bureau is normally adequate to make good lending decisions most of the time. However, when applying for a large mortgage or loan, consumers should understand that they may have different credit information at each agency. Consequently, getting the reports from Equifax, Experian, and TransUnion before applying for a loan enables borrowers to correct mistakes and provide the best image of their financial status to the lenders.
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