So, you have an excellent credit score, a solid debt-to-income ratio, and clean credit reports from the major bureaus (Experian, Equifax, and TransUnion). Heck, you’ve even started Tweeting to build up your social influence score and ensure that all your ducks are truly in a row. In other words, you’ve got it made and approval for that lucrative credit card or low-rate loan is basically a foregone conclusion. Right?
Inside Specialty Consumer Reporting Agencies
In the words of Lee Corso: not so fast, my friend! While people generally understand that banks take their credit data, income, and debt into account when making underwriting decisions, you probably had no idea that many financial institutions also consider various other undisclosed factors, the accuracy of which is impossible to verify. Past rejections and unfavorable terms might suddenly make a whole lot more sense now, but before you start hyperventilating due to anger or concern for pending applications, let’s delve a bit deeper into this matter.
There are at least 40 major companies operating in the United States that the Consumer Financial Protection Bureau (CFPB) has identified as specialty consumer reporting agencies. They collect information on various aspects of our lives – from check writing and rent payments to prescription drug purchases and medical history – and sell it not only to financial institutions, but also to landlords, employers, insurance agents, etc. In short, even though the average person knows little about the collection and ultimate application of this information, it can have far-reaching implications on our ability to operate within the banking system, land a job, get insurance coverage, and even find a place to live.
How to Minimize Your Risk
Assuming these companies always get everything right, you really have nothing to worry about. I mean, their reports would be a reflection of how you’ve lived your life, and you’d have no one else to blame but yourself for any negative ramifications. The thing is that’s a huge assumption to make. In fact, given the prevalence of mistakes in mainstream credit reports, it’s an assumption with a decidedly emphasized first syllable. After all, the CFPB recently began monitoring the 30 consumer reporting agencies with at least $7 million in annual receipts, which account for 94% of the market, largely because of their penchant for mistakes.
The good news is you’re entitled to a free copy of your report from most of these specialty reporting agencies once every 12 months in the same way that you have the right to see your Experian, Equifax, and TransUnion credit reports. You can also see the rest if an adverse action is taken against you because of the information they contain. So, it's a good idea to order any reports that you feel might be relevant to your life every year in order to parse them for mistakes. Not only could inaccuracies give decision makers in any number of fields a misleading perception of you, but they could also signal identity theft and fraud.
The bad news is there are simply too many bureaus producing reports for anyone to keep track. It’s easy to say, yeah go order all your reports, but actually doing so is another story. The onus should be on the industry (i.e. the companies that produce this information and profit from it) and not on the consumers on which it’s based. Our hope is that the CFPB addresses the issue with one centralized repository of information that consumers can access free of charge in order to confirm the information in all of their reports and file any disputes that may be necessary.
Until then, we’ll all have to do it the old fashioned way. If you find any mistakes make sure to make a big deal out of it, including lodging a complaint with the CFPB in order to draw attention to the issue.