What information can banks buy from a credit bureau?

credit reportAndy writes: What information are banks able to buy from credit bureaus about my financial history and standing and what do they use it for?

Credit bureau TransUnion replies:

When someone applies for credit from a lender, such as a bank, the lender will purchase that person’s credit files, which represent that individual’s creditworthiness. So a lender would buy a person’s credit file from a credit bureau such as TransUnion.  The type of credit information found in those files includes:

  • Personal information (identity, address, contact numbers)
  • Existing credit such as homeloans, car finance, clothing accounts, credit cards, etc.
  • Payment history, which would indicate whether or not you meet your monthly credit payments regularly
  • Negative listings – if you have any; these would include defaults, judgments and insolvency
  • Enquiries/credit applications from companies who have accessed your credit report for application purposes
  • The credit score, which is a numerical value based on an analysis of a person’s credit history calculated by a credit bureau such as TransUnion. There are a number of factors that influence your score, such as your income and expenses which you provide when you apply for that loan through your financial institution.

It’s important to understand that there are many different credit scoring models out there which are created by different credit bureaus and each may use a different scale – or numbers – to convey information. It’s up to individual lenders and insurance companies who use these scores to decide which scores demonstrate an acceptable level of risk.

The lenders, such as banks and credit card companies, use the credit bureau information listed above to evaluate the potential risk posed by lending money to consumers and to mitigate losses due to bad debt.

Lenders assess how a consumer manages their debt/ financial responsibilities in order to make a decision whether they can get what they are applying for, as the credit report shows the consumer’s behaviour when it comes to paying existing accounts. This helps creditors assess the likelihood of consumers repaying them and paying when the debt is due.