Sunday, July 27, 2014

How To Assess Credit Data Solutions

By Miranda Sweeney


People often mention the stress associated with having significant debt, but they may not realise that it is sometimes equally stressful to be on the other side of the transaction. By its nature, debt incorporates risk, and so lenders place their emphasis on evaluating those who apply for finance, as well as on how they decide whether or not to grant it. This process is assisted by relying on credit data solutions.

The examination always entails scrutinizing the past debt of the company or person submitting the application. Financiers want to have information on what other debts the applicant has, or has had, what amounts are or were involved and why the lending was necessary. They also want to be satisfied as to the applicant's payment profile. Are there bad debts? Is there anyone who wasn't paid? These enquiries have to be resolved, regardless of whether the other party describes them as undesirable.

The assessment also entails confirming the applicant's information. Financiers should always make sure that the information as to identity, employment and income is accurate. This is about more than creditworthiness. It is also about self-explanatory security issues.

This information about consumers is known as credit data. Since it is concerned with peoples' personal histories and financial affairs, it is not easy to obtain. It may be protected by legislation. Indebted consumers may also try to hide it from potential lenders. Operators in the industry therefore require a reliable source of such information.

There are subscription-based services who are able to provide such information. They are legally allowed to offer this service, even though subscription is not free. These credit bureaus administer databases of consumers and their track records. Financial institutions are permitted to purchase records if they have been authorized to do so by those applying for finance. There will always be text to that effect on the application form.

In choosing a data provider, lenders need to take certain factors into consideration.

To start with, what is the quality of the information provided? How reliable is it? How much information is given? A consumer's report should contain only correct dates and numbers. The bureau must also be forthcoming about where they obtained their records. Errors are serious because it is not only the lender who is disadvantaged by them; the consumer also suffers because their applications are turned down.

This is associated with the second issue: integrity. What security measures does the data supplier use? How hard is it for consumers to adapt or destroy their details? Data providers should have a considerable reputation in the industry. They should not easily release reports or allow alterations to their records.

Lastly, how many people are recorded in the database? What proportion of the market does the supplier represent? If the proportion is too low, the latter won't always be able to answer their customers' enquiries.

Credit bureaus and other data suppliers are sometimes attacked by the public because they are seen as enemies in the application approval process. However, they provide an essential service in preventing non-performing loans and other bad debt, thereby maintaining the sustainability of the industry.




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