To determine a consumer’s credit worthiness, creditors and lending institutions have come to rely on credit reporting agencies. Credit reporting agencies provide individual reports that provide specific consumer information for credit purposes. With the advent of technology, most creditors now have automated systems that give them direct access to credit reporting agencies. In most cases, credit bureaus or credit bureaus provide personal, legal, and account history information. In recent years, it has become more common for lenders to use multiple credit reports to meet credit requirements. In addition to meeting loan requirements, multiple reports also provide additional security measures. Using multiple sources for reporting purposes provides a broader and more comprehensive background check on a consumer’s credit and spending history.
Traditionally, when a consumer submits a credit application, creditors submit that information to credit reporting agencies. This is how credit reporting agencies can accumulate personal information about people. This information often includes items such as the consumer’s name, address, social security number, employment information, marital status, telephone number, and possibly income. Using credit reports, lenders can match the information a consumer provides on a credit application with the information the credit reporting agencies have on file. Some credit reporting agencies even hire companies or contractors to investigate and verify that the information entered on a consumer’s credit application is accurate and verifiable.
Most credit accounts are reported monthly to credit reporting agencies; these reports will reflect a payment and account history for all credit related accounts. The information provided by a credit reporting agency is known as a tradeline. On a credit report, there is traditionally a line of business for each creditor that reports account information to the bureaus.
As I mentioned before, not all credit institutions report to credit bureaus; however, most do. The major credit bureaus provide reports that include a consumer’s payment history at 30-day intervals. This is due to the fact that most consumer billing cycles follow a similar payment pattern. Most lending institutions have a set of proprietary rules and guidelines that govern the thresholds at which they report consumers as delinquent on their payments. It has been my experience that some lenders have gone so far as to not report delinquencies until the consumer’s account is 60 days past due. Other lenders are much stricter in their guidelines and will report delinquencies 30 days late. Traditionally, a credit report will provide a detailed summary of any delinquencies you have had with your creditors. This is measured by the number of times it fell more than 30, 60, 90, and 120 days past due. Many of these credit reports use a scoring system that assigns a specific status code to each 30-day period of late payments.
In the consumer lending industry, this method is often referred to as the simple method. For example, an R-1 rating represents a consumer account that is in good standing or an account that was properly paid and in good standing; an R-2 rating indicates payments were paid 30 days or more after the due date but less than 60 days after the original due date; an R-3 rating represents that the invoice was paid 60 or more days after the original due date but is less than 90 days past due; an R-4 rating shows that a consumer is 90 or more days past due but less than 120 days past due; an R-5 rating indicates that a consumer is 120 or more days past their original expiration date; an R-7 rating shows that a creditor was forced to recoup collateral on the account, and an R-8 rating means the account was referred to collections in an attempt to recover payment. The R-9 score is traditionally used to show that a debt or debts have been discharged through bankruptcy, have been garnished or foreclosed, or are currently in collection.