What Are Credit Bureaus and How Do They Affect Your Loan Application?
You’ve probably heard about credit bureaus when you sought information about your credit profile and credit score. You’ve probably also learned that they are the agencies that gather pieces of information about your financial life and compile them into a credit report. But do you know the extent of their influence on your borrowing capability and loan approval?
Credit bureaus, also known as credit reporting bureaus (CRBs), are for-profit organisations that collect and store information about your financial and credit transactions. This information is constantly updated according to your latest credit activities, including inquiries and dispute resolutions.
Leading Credit Bureaus in Australia
In Australia, three of the biggest credit bureaus include:
Equifax. The largest CRB in the country, it provides an 81-month credit history for lenders and borrowers. The agency is notable for its credit report that groups accounts as “open” or “closed” to conveniently compare the current versus old credit data.
Experian. This agency is used by many businesses for credit reporting more than Equifax. It is also known to track recent credit searches more thoroughly. Aside from numbers, it includes all of the borrower’s credit products that have been opened or applied for to provide a deeper insight into their debt management behaviour.
illion (formerly Dun & Bradstreet). Headquartered in Melbourne with offices in major cities across Australia and New Zealand, the agency provides credit data and analytics products and services in Australasia. It also owns the fintech, Credit Simple.
While all credit bureaus collect information from different financial institutions, the data they gather may not be identical. Many companies only send only the credit information of their borrowers to one or two CRBs. The law requires the CRBs to share certain types of information like fraud alert. However, they may choose to keep this information exclusive.
As for-profit companies that sell credit information to financial institutions, CRBs compete with each other. Those who have the most information naturally get more clients. Thus, the bureaus won’t share most of the information that’s in their databases. As a result, the financial institution often has different credit reports from two different CRBs.
Developing Your Credit Report
The CRBs create your credit report based on the information that they collect mainly from financial institutions including banks, lenders and credit card issuers. These companies voluntarily submit these pieces of information about your credit activities.
Aside from the lenders that loaned you money or granted you a credit line in the past, credit bureaus also collect information about your credit history from public records. These include your bankruptcy filing, foreclosure notice and any legal judgment against you.
Moreover, utility bills companies, smartphone plan providers and subscription services can also create “alternative” credit reports that can sometimes affect your ability to borrow.
The CRB then compile all the data about you in to your credit report. Because each CRB may not receive the same information from your lender, your resulting credit report typically varies from one CRB to another.
The same financial institutions that submit your credit information to credit bureaus are also the ones that will request for your credit report. They do this before deciding on your loan application, as well as on your loan’s interest rate terms if approved.
This is not free for lenders, however. If lenders want to check your credit report from a CRB, they can only do so for a fee. This is how credit bureaus mainly make money.
Credit bureaus also sell your credit report to landlords, employers and marketing companies, but the information in the report is not as comprehensive as the one they give to lenders.
Credit Bureaus and Credit Scoring
CRBs do not just have different information for one borrower on their credit reports based on the data they received or not received from different financial institutions. They may also assign different credit scores to quantify a borrower’s creditworthiness.
Equifax scores a borrower’s creditworthiness from the lowest 280 to the highest 850. Experian, meanwhile, has its own numerical scoring model, which range from 330 to 830. While both companies assign credit scores to borrowers, they also provide detailed credit histories with deeper information about a consumer’s borrowing habits.
Most lenders, however, rely on the FICO score as a basis of their decision for approving or rejecting a loan application. Fair Isaac Corporation developed the FICO score. It uses a proprietary algorithm to score a borrower’s creditworthiness from 300 to 850. FICO assigns you a credit score based on the information in the credit reports. Your score rating can be very poor, fair, good, very good and exceptional. Good scores start at 670.
The information that influenced your credit score varies depending on the scoring model used. However, the following factors generally affect it:
- Payment history
- Credit utilization rate
- Type of credit account
- Total debt owed
- Bankruptcy filing
- Number of newly opened accounts
- Number of recent credit inquiries
- A mix of credit accounts
Your credit report does not include your credit score nor does it becomes a part of your credit history. It is only calculated upon request. It is also updated based on the changes in your credit history and recent activities.
How Credit Bureaus Affect Your Loan Application
Credit bureaus create your credit report and even your credit score, but they cannot make decisions regarding your loan application. They can only present the data they collected for the lenders to examine. The decision about approving or rejecting a loan application lies entirely in the hands of the creditors. These include banks, mortgage lenders, credit card issues and other types of financing institutions.
Your Credit Report is Free
While financial institutions and other companies pay to access your credit report, you can get it for free. The law requires credit bureaus to give you a free copy of your credit report every year. You can also check your credit report for free every month on Experian’s website.
Alternatively, you can get a free copy of your latest credit report and credit score through online lenders like Loans For People With Bad Credit.
Checking your credit report provides you with insights about your creditworthiness and knowing where you stand in the borrowing world.
Requesting for it at Loans For People With Bad Credit is also fast, free, confidential, and makes no impact on your credit report. Get your Free Credit Check now.
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