Role of Credit Bureaus in Credit Card Approvals
If the credit bureaus rate your credit high, you may find your mailbox flooded with credit card offers from the thousands of credit card issuers in the country. There are many banks offering various credit cards, with rewards this and rewards that; platinum, gold, or silver; and so many variations thereof. You may get offers from your professional organization (lawyers, doctors, and engineers), your alumni association, and your environment club or sports association. Thousands of others, who are rated as safe payers by the various credit bureaus, receive similar offers. In fact, every year credit card issuers send out several hundred millions of offers.
To process all of the applications resulting from these offers, the credit card industry makes extensive use of quantification, or credit scoring, to double check whether an applicant should be issued a credit card (or even become target for other kinds of credit). The industry turns to credit bureaus for the quantification part.
The credit bureaus credit scoring systems give creditors the capability to evaluate millions of applicants on a consistent and impartial basis. This has made the credit card one of the most highly efficient methods of obtaining, granting, and expending loans. The credit bureaus base their credit scoring systems on large samples of the population in order to make it statistically valid.
In the credit card industry, the credit scoring system generally involves a two-step process.
First, your credit card application itself is scored by the credit card company. For example, if you own your home you are likely to get more points than if you only rent one. If your application obtains a sufficient number of points, then the credit card company buys your credit report from the three major credit bureaus.
The three credit bureaus operating nationwide are Transunion, Experian, and Equifax. The issuers buy from all three credit bureaus because your Experian credit report will have different ratings from your Equifax credit report, and the credit score Transunion will also differ from the rest. The variation exists because each of these credit bureaus will have different sets of businesses and creditors that report to them. Thus, although the parameters that the credit bureaus track may be similar, the quantification or credit scoring results will differ.
The score on the credit report issued by each of the how do i become a credit card processor credit bureaus is central to the decision to issue a card.
As the vice president of a company that is in the business of designing scoring models for lenders once described it, an applicant may submit an application that’s good as gold, but if the credit reports from the credit bureaus are lousy, the applicant will get turned down every time. In other words, it is the numbers on the ratings submitted by the credit bureaus, not the qualitative factors, which are ultimately decisive.
It may turn out, in the end, that the majority of applicants will get approved by one credit card firm or another. Because the profits from the credit card business are extraordinarily high, credit card firms can afford to have a small proportion of cardholders who are delinquent in paying their bills or even some of those who default on their debt. Nonetheless, it is in the interest of credit card companies to weed out those who will not be able to pay their accounts.
Scoring models of the credit bureaus will also vary from one locale to another, and these are regularly updated to reflect changing conditions. Despite great variation between the different credit bureaus’ reports, the following items generally receive the most weight:
· Possession of a number of credit and charge cards (30 per cent or more of the points). You should realize that if you own too many cards, this may cost points, and that having no cards at all may be an even more serious liability. Having too many cards will increase the amount of credit that is available to you at any time, and it would be easy to run up your debt by charging more to the various credit cards. This is what causes concern with the lenders. On the other hand, the credit bureaus believe not having a credit card at all is definitely alarming: there must be something terribly wrong.