You’re probably familiar with credit reporting agencies (CRAs), more commonly known as credit bureaus. These agencies maintain credit reports for every American consumer with a federally-issued social security number (SSN).
A credit report file includes various information about a person’s financial debt. This information includes account numbers for current and past debts, loan forms and terms, and of course, payment histories. If someone defaults, the creditor may report this to the CRAs to be posted to the consumer’s credit file.
How does a consumer’s information get to the credit bureaus?
Any business that extends credit to consumers can report the customer’s payment information to the major credit bureaus. Plus, property owners, homeowners associations (HOAs), utilities, and other non-traditional reporting organizations may also submit payment data.
Larger lenders like financial institutions and credit card companies regularly report to the CRAs. They electronically submit millions of files every month. But if you’re a small- to medium-size business with a few thousand accounts or less, it isn’t that easy to report. The same is true for non-traditional reporting organizations.
Businesses and organizations like yours have a couple of options when it comes to consumer credit reporting. First, it’s important to learn a little more about why you should report your customer payment data. Second, you want to know how they bureaus use that information.
Credit bureaus 101
For decades, the three major consuemer credit bureaus have been Experian, Equifax, and TransUnion. Recently, a fourth CRA, Innovis, has joined their ranks. Each of these bureaus collect, update, and save credit histories on American consumers. This information is provided to consumers and potential lenders in the form of a credit report and a credit score.
Although a consumer’s credit score may vary slighly from bureau to bureau, all CRAs issues scores within a range of 300 to 850. A credit score is based on a number of factors, including:
- The number and types of credit accounts you have
- Your available credit
- The length of your credit history
- Your payment history, including late or missed payments
- Bankruptcies, liens, and judgements
- Accounts that have been placed into collections or written off as bad debt
Benefits of reporting credit data
Most people don’t want a negative report on their credit history or to lower their credit score. Sometimes simply reminding them that paying late will impact their credit will actually encourage them to pay. This is especially true with non-traditional reporting organizations, like property owners or HOAs. Your residents or customers may prioritize other payments over yours simply because they think paying late won’t hurt their credit.
In addition to the “stick” approach, consumers might be motivated by the “carrot.” In this case, the carrot would be the option to beef up their credit report and increase their credit score by paying on time. Since the number and types of accounts are among the factors used in determining a score, the more non-traditional positive credit data that’s reported, the better.
Should you try a collection agency?
If you’re having problems getting your tenants or customers to pay on time, hiring a collection agency is an option to collect your outstanding debt. However, collection agencies keep a portion of what they recover as their fee, so you’ll never recover the full amount owed. If they can’t collect, they report the default account to the three credit bureaus in their name, not in your company’s.
If you’re thinking about going the collection agency route, first confirm that the agency is a member of three credit reporting bureaus. Next, ask them about any discounts they might offer you if you have a large amount to collect. Lastly, just be aware that you may be liable to the consumer if the collector violates the federal and state laws regulating the collection of debt.
A credit reporting service is a better choice
Credit reporting services like Datalinx, LLC exist to help small- to medium-size businesses report to the four major credit bureaus. Credit bureau reporting services help to eliminate the hurdles of reporting to the bureaus.
Credentialing: Each CRA requires your business or organization to complete an application and provide specific information to before you can start reporting. Because credit reporting services are familiar with the requirements of each bureau, they can expedite this process for you.
Credit stacking (aggregating): Most bureaus require you to have a minimum number of accounts before you can report. This makes reporting out of reach for many smaller businesses and organizations. A credit reporting service, though, can bundle your accounts with those of other small businesses so you always meet that minimum.
Metro 2 formatting: The bureaus require creditors submitting credit data (data furnishers) to use a specific file format. That format is Metro 2. You can convert your payment data into Metro 2 format using credit reporting software. However, you want software that easily integrates with your existing systems. Datalinx’s credit reporting software offers a seamless, simple integration and automates your monthly submission process. Plus, we help you set up the software and send your first test file to the bureaus. This ensures the data you send is accurate and always on time.
For most small to medium sized businesses, the most effective way to collect late debt and encourage on-time payment is to report to bureaus. A credit reporting service like Datalinx, LLC makes this easy for you and your team. Contact us today for more information specific to your business and how we can help.
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