In this age of content and increasing financial education available to all, most entities are familiar with credit bureaus, including Experian. They are known for housing enormous amounts of data, delivering credit scores and helping businesses decision on credit.
On the consumer side, there are certainly myths about credit scores and the credit report. But myths exist among businesses as well, especially as it pertains to the topic of reporting credit data.
How does it work? Who’s responsible? Does reporting matter if you’re a small lender?
Let’s tackle three of the most common myths surrounding credit reporting and shine a light on how it really is essential in creating a healthy credit ecosystem.
Myth No. 1: Reporting to one bureau is good enough.
Well, reporting to one bureau is definitely better than reporting to none, but without reporting to all three bureaus, there could be gaps in a consumer’s profile. Why? When a lender pulls a consumer’s profile to evaluate it for extending additional credit, they ideally would like to see a borrower’s complete credit history. So, if one of their existing trades is not being reported to one bureau, and the lender makes a credit pull from a different bureau to use for evaluation purposes, no knowledge of that trade exists. In cases like these, credit grantors may offer credit to your customer, not knowing the customer already has an obligation to you. This may result in your customer getting over-extended and negatively impacting their ability to pay you. On the other side, in the cases of a thin-file consumer, not having that comprehensive snapshot of all trades could mean they continue to look “thin” to other lenders.
The best thing you can do for a consumer is report to all three bureaus, making their profile as robust as it can be, so lenders have the insights they need to make informed credit offers and decisions. Some believe the bureaus are regional, meaning each covers a certain part of the country, but this is false. Each of the bureaus are national and lenders can report to any and all.
Myth No. 2: Reporting credit data is hard.
Yes, accurate and timely data reporting requires a few steps, but after you get familiar with Metro 2, the industry standard format for consumer data reporting, choose a strategy, and register for e-Oscar, the process is set. The key is to do some testing, and also ensure the data you pass is accurate.
Myth No. 3: Reporting credit data is a responsibility for the big institutions –not smaller lenders and companies.
For all lenders, credit bureau data is vitally important in making informed risk determinations for consumer and small business loans. Large financial institutions have been contributing to the ecosystem forever. Many smaller regional banks and credit unions have reported consistently as well. But just think how much stronger the consumer credit profile would be if all lenders, utility companies and telecom businesses reported? Then you would get a true, complete view into the credit universe, and consumers benefit by having the most comprehensive profile
Bottom line is that when comprehensive data on consumer credit histories is readily available, it’s a good thing for consumers and lenders. And the truth is all businesses – big and small – can make this a reality.