The workings of the Credit Reporting System

By: Huzef Saifee | Posted: 09th April 2006

It is important for the modern business to have a viable credit reporting system. It is a system that establishes relations between two parties looking the two important aspects of business. The first parties are called credit bureaus.

They are independent agencies collecting credit information. The second parties are merchants. They pay for the credit information as and when they need it. Now, you can say that relations are need based. The credit bureaus provide credit information to those business merchants who pay for their services. Merchants are as good as subscribers subscribing for the information. Generally, it happens in every business. The main focus of credit bureaus is to satisfy the demands of their customers ***** subscribers who are in need of credit information regularly.

In the credit market, your reputation is always under scrutiny. As and when you ask for the credit and approach to a local merchant, the merchant immediately establishes relations with the credit bureau and ask for information about your overall credit reputation. This credit reporting system helps the merchants to evaluate the risks in extending you credit.

Credit bureaus have no role to play in the decision making process of approving or disapproving the credit. They are just like reporters simply collecting information and passing/selling it to others who need it to know the credibility of their customers. The information related to your repayment is collected from the credit institutions or the merchants from whom you have already borrowed credit. Then this information is handed over to the new credit institutions or the merchants from whom you want to borrow fresh credit. But one thing is that credit bureaus generally maintain some strategies as to how the evaluation is to be made on the bases of available informations. This information proves to be the most significant factors while taking decision on approving fresh credit to an individual, group or company. The merchants giving you loan or credit will verify everything about your past history in repaying loans; they will consider your ability and willingness to repay the loan and will take a note of your other material or non material assets while approving of the credit asked for. They grossly calculate your present and future financial obligations and your ability to meet such obligations. This is done simply to reduce the credit risk as much as possible.

This system has its shortcomings too. Such shortcomings are the offshoots of the relations between the credit bureaus and the merchants. Here, you are totally ignorant of how information is being collected; what is considered merits and what demerits. You will not be given any opportunity to prove yourself honest particularly in financial transactions. The reality people smell is that the merchants generally try to avoid bad credit risks, and the credit bureau provides such tainted information that will help the merchants denying you of the credit. That is how the credit bureaus help the merchants and make profit. You do not have the knowledge of the credit bureaus and the pieces of informations they tend to provide to the merchants. Your interest and honesty are not being heard. This is, however, the workings of the credit reporting system.

It often happens that without proper documentation of errors, the credit bureaus rely on information as reported by subscribers, and assess negatively. The credit bureau wants to be on the safe side since the merchants or the subscribers will not verify such information provided to the merchants on credit repayment and financial status of the customers. Nor do the merchants complain against the bureaus or the subscribers. The main aim of the merchants is to ensure that their investment must fetch maximum profits, and not get it lost. It's clear that the system runs on, to a great extent, on speculations. If the merchants meet any loss or so, they will first and foremost criticize the bureau for not providing negative information which would have prevented the merchant from tendering credit to the customers concerned.

A few aspects are important to discuss. Every credit bureau tries to maintain accurate information as it seems to be financially feasible. At the same time, they know the limitations of quality control. Therefore, they like to be on the safe side by highlighting more negative aspects and less positive aspects of the tentative customers. They realize that if they do err, it is better to err on the negative side rather than the positive side.

For more information regarding credit report visit me at http://1-creditreport.blogspot.com This article is free for republishing
Printed From: http://www.articlealley.com/article_42940_19.html
Back to the original article

Tags: credibility, subscribers, decision making process, one thing, credit bureaus, credit information, credit bureau, scrutiny, reporting system, credit reputation, credit institutions