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There are 3 major credit reporting agencies in
the US, Equifax,
Experian, &
Transunion.
When you apply for a consumer or even a business
loan, the credit bureau that is used will
often be based on what region of the country you
live in. If you live in the Eastern &
Southeastern United States,
Equifax will often
be used, Experian for the Midsouth and West, and
Transunion for the Midwest. Although all are
full national bureaus, each bureau tends to be
strongest in those regions and will have the
most complete file.
All three bureaus are not mirrors of one
another. There may be both good or bad
tradelines in one or two bureaus, that are not
reported in the others. Some companies that you
are applying with will use what’s called a
“Tri-Merge”. In a Tri-Merge report, the company
you have applied with will see a combined file
so that every trade line will be seen. They will
also see the credit score you received on each
bureau. If one of the scores at one bureau is
considerably lower than the score at the other
two bureaus, this may influence their decision.
The credit score,
which may also be called “Fico Score”, or
“Beacon Score”, or “Empirica Score” is a risk
score assigned to you. Many companies consider a
number of primary and secondary factors about
your bureau to determine if your risk level is
acceptable.
for their
standards, but the bureau score is the single
most important factor.
Since most companies you apply at will be
private institutions, it is at their discretion
who will be approved for a loan. What Company A
decides is acceptable may not be acceptable to
company B. Other important bureau factors
include Time in File, high credit, number of
Tradelines, number of recent inquiries, total
credit card balances, unsecured account balances
as a percentage of limits, and derogatory
reportings. All of these affect that final
credit bureau score.
If you have been approved, great! If you were
declined, get a copy of your credit report to
see what is on the report. The credit report you
receive will probably have a different format
than the ones used by companies you have applied
at. It will be less technical, will rely more on
words than on numbers, and may not have a credit
score.
Many large companies will “Auto Decision” your
application, meaning a computer will decide if
you get the loan or not. Another technique is
for the computer to auto decline the
applications that are below an absolute low
standard and auto approve those with score and
characteristics so high that the institution is
comfortable granting credit without a person
even looking at your application. This means you
may be declined by a computer. The applications
in between are often sent to a credit person for
review.
In many smaller companies, an individual will
review every request. Statistics prove that over
time, as far as the overall default rate, better
decisions are made by the computer risk models.
These computer risk models are developed
in-house by some large companies, or purchased
from outside vendors. Tens of thousands of real
applications and their performance over a period
of years are assessed in order to create these
computer credit risk models and to assign risk
levels and scores. They are applied to new
applications since prior performance is the best
indicator of future performance.
However, mistakes are made.
Example:
When
a credit card issuer sets a cap on the amount of
unsecured revolving credit they are willing to
have any one applicant have (Credit Cards, Lines
of Credit). If an applicant is above that
threshold, they will be declined. On credit
reports, credit cards and lines of credit will
be listed on an account as an “R”, for
revolving. Many homeowners have an equity line
of credit with a high limit which unfortunately,
the credit agencies may report as an “R” and
incorrectly lump these lines together with
credit cards and lines of credit when reporting
your total unsecured credit. This error may also
be caused by a companies risk evaluation models.
This may cause you to incorrectly exceed their
maximum and be declined. The credit bureaus may
also list this as unsecured credit available,
which may slightly lower your score more than if
they had correctly listed it as a secured line.
Example:
John
Smith has 5 Credit Card for limits for $ 25,000
John also has a home equity line for $50,000
These two are lumped together and now you are
shown as having $75,000 in unsecured credit,
which some credit grantors may consider too
much.
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