Photo by CourtneyK via Getty Images

Photo by CourtneyK via Getty Images

When the deal is done and the delivery is on the line, F&I managers know the importance of being able to read and synthesize consumer credit reports. It accelerates the purchasing process, makes for good customer relations, helps maximize the deal, and also ensures compliance with lending guidelines. Un­fortunately, reading the credit report has become a lost art among today’s new gen­eration of F&I pros.

Streamlining and maximizing the credit review process can prove to be challenging. Having a better under­standing of how to read and synthesize consumer credit reports can accelerate the process, improve consumer rela­tions and ensure lending compliance. Credit reports provide a great deal of insights into a potential buyer, but read­ing them can be perplexing, especially for the untrained.

Let’s review the ins and outs of how to read a consumer credit report, the order and makeup of information contained in a consumer report, what to look out for with respect to inquiries, and how these reports can help provide consumers with the best possible experience.

Just the Facts

A customer’s credit report and credit score are a reflection of data reported by creditors to the three major credit bureaus: Equifax, Experian, and Trans- Union. It can predict how likely it is that a consumer will pay back his or her auto loan, which can help determine the ap­propriate interest rate and whether your captive finance company will buy it. The data is organized in such a way as to iden­tify the consumer and provide a complete picture of their credit acquisition and payment history.

Some dealerships may rely on just one bureau for credit reports. Oth­ers focus only on the score. But scores can vary across reports, and sometimes there is an imbalance. When the scores vary wildly across reports, that most of­ten means at least one of them is lacking key information.

Case in point: Not all lenders report to every credit bureau. Should a con­sumer be turned down because of a lack of, different, or negative information on a given report, the best financing deal is not achieved and lost profits ensue. If you send them home, they are probably not coming back.

Credit Report Breakdown

You need a general understanding of what is in a credit report to evaluate each customer’s access to credit in a timely manner. Reports produced by each bu­reau might differ in terms of layout, but each will contain the following pieces of information:

Subscriber-provided input and in­formation: This is a record of actual con­sumer information that has been entered to locate the file.

Consumer demographic informa­tion: This section helps verify consumer identity by providing certain information from data furnishers. This may include the consumer’s name, current and previ­ous addresses, Social Security number, date of birth, phone number, and em­ployment history.

Special messages: This section shows any special credit file conditions and helps with compliance requirements. It highlights differences in surname, ad­dress, or SSN, includes notification of ad­dress discrepancy — which is a require­ment under the Fair Credit Reporting Act — and provides information which may help you comply with the USA Patri­ot Act. High-risk fraud alerts may appear if an address or Social Security number was used in previous suspected fraudu­lent activities, and names can be screened against the U.S. Treasury Department’s OFAC database.

Model profile: This section is only in­cluded when you subscribe to and receive certain scores or models, such as a FICO score or a VantageScore. Each has its own algorithm and each has multiple versions. Know which version is being used should the consumer have questions.

Credit summary: An optional com­ponent, it provides a snapshot of the con­sumer’s credit report for either the total file history, or just the last 12 months of activity, illustrating the number of nega­tive accounts from any of the assigned creditors. It also provides a total of dif­ferent trades from revolving credit, in­stallment loan accounts, and number of inquiries.

Auto summary: This section dis­plays activity relevant to vehicles the consumer has financed, features five of most recent auto trades (both open and closed), an estimate of APR for each auto loan, and total revolving credit calcula­tion. You will also find a summary of payment, balance, months remaining, and delinquencies on auto loans, the highest amount ever owed on an account, the maximum credit approved by the grantor, the balance owed as of the date verified, any past due amounts, the sub­scriber-reported monthly payment, and the percent of credit available for each account.

Collections: Here you will find any accounts placed with a debt collection firm along with corresponding dates.

Trades: This section covers buying and payment activities. It shows a number of codes for type of business and the col­lateral. It shows the highest amount ever owed by the consumer and the current balance owed. “Terms” show payments, frequency, and any past due amounts. Should delinquency occur, it will list the date. “Payment history” shows up to 24 months of credit account statuses, including any past due and missed pay­ments, which stay on most reports for about seven years. Trade information also includes the abbreviated name of the credit grantor or data furnisher with whom a consumer has an account.

Credit inquiries: This is a list of all the banks, credit unions, auto dealers, mortgage companies, and other would-be creditors that have pulled the consum­er’s credit file over the past 24 months.

Consumer statement: A statement to protect consumers against fraud may be included.

Pertinent Tips

Dealers should be working with credit bureaus to help consumers and provide a seamless experience, and this starts with dealer education. Fraud prevention should also be addressed with solutions that F&I managers can incorporate into their workflows, such as better manag­ing the “Red Flag” alerts that will come up when a potential higher risk of fraud is presented. There can be added stipula­tions in the consumer verification pro­cess, such as income verification and ad­dress mismatch.

Overall, a person’s credit scores can vary by as much as 50 points between different bureaus due to the different in­formation reported to each bureau and the data used to calculate each bureau’s scores. For example, two of the three bureaus may place a consumer in the “prime” tier while the third may have that same consumer several tiers down, leav­ing them with less attractive financing offers. Factors such as old data or report­ing errors could adversely impact a credit score at one bureau compared to another.

Armed with a better understanding of the consumer credit report, F&I man­agers can get the most out of the lending process for their buyers, deepen their re­lationships by building their credibility with accurate information and meet auto lending compliance requirements.

Brian Landau serves as senior vice president and automotive business leader at TransUnion. Email him at [email protected].