Feb 24, 2013 Sean Albert
Many consumers and business leaders aren't sure exactly what makes up their credit scores - they largely just take them as a number that indicates whether or not they're going to be able to easily open new lines of credit or look into alternative providers for funds. However, workers at credit bureaus go to great lengths to compile rankings that can provide a guide for lenders or credit card companies.
Though sometimes mistakes or omissions are made, these scores are largely accepted. That said, there are alternatives out there that lenders could benefit from reviewing, as opposed to relying on older methods.
Some people are critical of credit reports
A recent "60 Minutes" airing was critical of the process of compiling a credit score and assuring that credit reports are accurate. While the Consumer Data Industry Association conceded that mistakes do occur, a recent study by the Policy and Economic Research Council revealed that 95 percent of consumers are satisfied with the process of disputing a claim on such histories.
The main thing that lenders and individuals need to be aware of is that, as "60 Minutes" reported, around 40 million Americans could have mistakes on their credit reports, most of which can be wiped out by bringing the error to the attention of credit bureaus. This number is relative however, as analyst Mellody Hobson explained on CBS This Morning, as there are a total of 600 million reports published by the three major credit bureaus annually.
As such, for a select population, lenders might consider looking at other reports and factors on top of the traditional report.
Other factors could provide better view
However, if more importance was placed on other financial factors, credit scores could be more robust and provide a more accurate view into whether a consumer or entire business could easily pay back a loan. For example, this might be accomplished if more lenders considered an individual's Payment Reporting Builds Credit figure. Where more traditional scores don't typically place great importance on a history of paying off utilities accounts, these tendencies, along with other factors, are considered during the ranking process.
While many people are satisfied with the more traditional scoring tactics, considering a PRBC score could benefit both consumers and lenders worldwide, as this would likely enlarge the target audience who would be approved for a loan.