How lenders report and rely on credit bureau information

This post originally appeared April 14, 2016 on CreditCards.com as “Positive info not always reported to all 3 credit bureaus

By Barry Paperno

Dear Speaking of Credit,
In recent years I have been greatly improving my credit habits. However, I have been using only my personal bank for auto and personal loans. I recently applied for a credit card through my bank and was approved. I was informed that my bank only reports to one of the credit bureaus. So my Equifax score looks fair though TransUnion shows poor. This is mainly due to old medical debt that should fall off in about two years.

Here are my questions for you: Is it possible to have my accounts reported to a credit bureau even though my bank doesn’t directly report them? Also, I have heard that medical debt is supposed to have less impact on your score when being considered for a line of credit, so is this true and if so to what degree? Finally, if I continue to only use my personal bank for credit lines that only report to one of the credit bureaus, how will this affect my overall credit? Thanks again. — Keith

Dear Keith,
The practice of banks, such as yours, reporting to only one or two of the three credit bureaus — Equifax, Experian and TransUnion — was much more common in the past than in recent years. Most now report to all three. Still, your experience shows that there remain some small banks, credit unions and other lender holdouts who report to only one or two, but not all three bureaus. That often surprises consumers, who expect all three credit bureaus to accurately reflect their credit histories.

If your bank doesn’t report a loan to a credit bureau, unfortunately, there’s no way for a consumer to force the creditor to start. Information can only be reported to a credit bureau by a business — not consumer – that subscribes to that bureau. Of course, it won’t hurt to ask your bank if they will report to all three; just keep your expectations low if you do.

Why does it matter whether a bank or other creditor reports your positive credit history to all three credit reporting agencies?

It may sound like an odd practice, but most credit card and auto finance companies report their existing accounts to all three bureaus, while relying on only a single bureau report and score when granting new credit.

For these lenders, the choice of which bureau to use can vary depending on the credit product, consumer’s location and numerous other criteria. A bank may pull from any of the three bureaus for different products in different regions at different prices.

For example, a bank might use Experian in the Western U.S. for its rewards card as its first choice bureau. If, for some reason Experian doesn’t deliver a report for a consumer, perhaps because of a thin file, it might pull Equifax as a second choice and TransUnion as the third choice. The same bank could use Equifax as the first choice for auto loans in the Southeast. They tend to pull all three for mortgage lending and for their collection operations.

Or they may use Equifax as their first choice for their auto loans in the Southeast with TransUnion as their secondary choice, etc. Of course, they’ll use all three in their collection operations, which need to be able to pull from whatever bureau can best help them locate borrowers who have skipped out.

These pulling strategies tend to change frequently, so even if you do find out which bureau’s report will be pulled today, the information goes out of date quickly.

With no way of knowing which bureaus are likely to be accessed as part of a credit evaluation, it makes sense for consumers to do all they can to maximize their scores at each bureau.

Another reason to want the best possible credit score at each bureau is that, while card and auto lenders tend to use only one bureau’s score per application, a mortgage lender will typically consider all three of your bureau scores before approving a mortgage loan. For a consumer who doesn’t have scores at all three bureaus, or has a low score at one or two bureaus due to a reporting situation like yours, it will be virtually impossible to obtain a mortgage, no matter how good the credit report may look at one or two of the three bureaus.

Since you have old medical debt weighing down your current credit standing, and since you asked about how scores treat medical debt, you may be interested to know that the latest FICO model, FICO 9, lessens the impact of unpaid medical collections. It lowers your score by fewer points than other types of unpaid collection debt, while ignoring all paid collections of any kind.

Unfortunately for consumers with medical collections, relatively few lenders have adopted this model to date, as a new scoring model tends to take years before being widely implemented. Working in your favor with any scoring model, however, is the age of your medical debt. Because it’s old, it has less of a negative impact than it did when it was new, and soon it will be removed from your credit report entirely.

How is this credit reporting inconsistently across all bureaus affecting your scores?

Keep in mind that, just as the amount of bad debt can determine the amount of damage to scores, good scores result from as much positive information on the credit report as possible. So, while it’s possible to have good scores at each bureau without each one having all of your information, your scores stand the best chance of being better overall when your entire positive credit history is included in all of your credit reports and scores.

Next steps?

For now, just make consistently on-time payments on all of your accounts as you continue to reduce your debt by a little more each month. Also, know that if you’ve had any late payments, charge-offs, collections or other derogatory items, simply the passage of time can work to your benefit. The longer it’s been since the last negative occurrence, the higher the scores.

Only then, when you can describe your scores at all three bureaus as being better than fair and poor, should you apply for any new credit, while being absolutely sure that the company reports to all three credit bureaus.

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