Bureau Preference, How Do Lenders Determine Which of Your Credit Reports to Pull?

A fairly common question that I get is "Hey John, how do lenders decide which one of my credit reports they are going to pull when I apply for credit?"

The term that is used in the credit world is "bureau preference" and all it means is that any lender can pick and chose which credit reporting agency they will use to decision your application.  So, if the lender wants to pull your Experian credit report then so be it.  If they want to pull TransUnion or Equifax, then they can do that too.  The credit reporting agencies don't have any sort of exclusive deals with any lenders that would prohibit them from buying a credit report from a competing credit bureau.  It's voluntary.

Now, how are these bureau preferences determined?  That's where it gets a little bit more involved.  On the surface it would make sense that it all comes down to pricing...so wherever I can get my credit reports the cheapest is where I'll buy them.  That's not the case.

Certainly price factors into the equation.  If I can buy an Equifax credit report for $.50 and the best I can get from Experian is $.85 then I'll probably lean toward using Equifax.  But price isn't the only factor.  The quality of the data that they are selling is a huge factor in determining bureau preference.  No, not all of the credit bureaus have the same data.  Some have more, some have less.  Some have more high value data and some have less high value data.  Why does this matter?

What goes into determining your credit scores?  The data that each credit reporting agency stores as your credit file.  And if one of the credit bureaus is missing high value data about me, then the score (probably a FICO score) that they are selling isn't going to be as good of an indicator of my future credit risk.

There are also service standards that the credit bureaus have to meet in order to maintain (and win) a lender's business.  For example, what if I want to buy a list of names from one of the credit bureaus for a pre-approved credit card offer that I want to send out and I want that list delivered to me in 2 weeks?  If only one of the three credit bureaus can turn that request around in two weeks then I know that they are more nimble than their competitors.  That plays a huge roll in determining bureau preference.

The way it normally works is that most large lenders have accounts with all three credit bureaus and they are able to toggle back and forth between the three at will.  Once they set up their three accounts then they program what's called a bureau preference table into their application system.  That table is nothing more than a list of zip codes that coincide with a credit bureau based on some combination of the above variables (price, data quality, service levels). 

So, if I'm John's Bank and a consumer submits an auto loan application I'll enter their information into my application system and, based on where that consumer lives (as determined by their zip code) that will determine which of the three credit reports I want to buy for that application. 

For some types of loans the lender will pull all three of your credit reports regardless of where you live.  Mortgages are a great example.  Most mortgage loans are decisioned off of all three of your credit reports and your middle FICO score. 

There are, however, lenders that will pull multiple credit reports and scores for non-mortgage loans.  It's their choice...they can pull one, two or all three of your credit reports.  Or, if they feel lucky...they can not pull your credit at all.  (LOL).   

Comments

[jason]

How much does a mortgage inquiry effect my credit? And how long does it stay in my credit? Another thing, what are My chances of being approved for a business loan such as a (franchise) in the ammount of about 200,000.00 with a mid fico of (671)..? My concern is if the lender's decision was the same as lending someone a home loan? Thanks much!