One would assume that the creditors would want to base their lending decisions on the most accurate information. After all, they are in the business of calculated risk and accuracy stands to lower their risk, right?
Well, not exactly. Creditors actually benefit when there are errors on the consumers’ credit report. For example, a woman applies for a car loan. She has 25% down and seeking to borrow a conservative amount of money in relation to the salary she makes.
Her credit report is pulled by the car dealership. While she appears to have very good credit, it is not good enough to qualify her for a promotional rate of 0%. She is offered the car loan at a 6.9% standard interest rate instead.
If the approval process were not automated and actually required a manual review of her credit report, she may have the opportunity to identify the items that are incorrect and provide evidence to the dealership to obtain the 0% interest rate.
However, the process is automated; therefore, actual credit reports are rarely reviewed during the process. Chances are that she will purchase the car at the 6.9% interest rate. The auto industry benefits in two ways:
First, they are able to profit from the financing; when a consumer is eligible for a promotional rate (0%, 1.9%, etc) offered by automotive dealers through special financing provided by the manufacturer, the auto dealership does not profit based on the interest rate agreed to; however, when someone does not qualify for those special rates, they are able to up-sell the interest rates and not only profit from the sale of the car, they can profit from the financing of the car as well.
Secondly, the calculated risk they are taking is actually lower than the credit report indicates, because she is actually a better credit risk than her score indicated! So the bureaus profit from credit mistakes, and now the creditors do too? This is one more reason why our services are so valuable to the average Joe consumer.