Today on the Rules of Thumb blog from MoneyThumb we would like to address how reporting to credit bureaus benefits you as an online lender. The fact is, credit bureau data is vitally important to online lenders when you are making informed loan decisions. And the backbone of this data is credit reporting.
With the rise of online lenders, there is a renewed focus on reporting credit data, particularly in light of the rapid growth of this sector. According to Morgan Stanley research, online loan volumes in the U.S. have doubled every year since 2010. It is predicted this growth will nearly double by 2020.
As more consumers and small businesses approach online lenders, as a lender you have a growing responsibility to be good stewards of the credit ecosystem, doing your part to support the value of information available for the entire industry – and for your own benefit. After all, failure to report credit data could have an adverse impact on the financial landscape, affecting consumers, small businesses and online lenders themselves.
So why specifically should lenders report to credit bureaus?
1. Stay Ahead of Regulations
True data reporting is currently voluntary for marketplace lenders. But the Consumer Financial Protection Bureau’s (CFPB) recent activities reflect a growing focus by regulators to advocate for and protect consumers. Voluntary data reporting reflects the spirit of transparency and aligns with many regulatory priorities. By taking proactive steps and reporting data on their own, online lenders can stay one step ahead of regulators, hopefully alleviating the need for new regulations.
2. Gain a Competitive Advantage
Credit data reporting is about “doing the right thing” for consumers, but it can be good for business too. Online marketplace lenders can gain distinct advantages by reporting. For example, with access to more accurate consumer information, lenders are able to develop and offer more competitive products tailored to the unique needs of their customers. By expanding their offerings, online lenders can differentiate themselves and thereby grow market share.
Reporting also enables lenders to emphasize their commitment to consumers as part of their value proposition, demonstrating how they are helping to grow customer credit. Reporting rewards customers with good payment history, allowing them to take advantage of better loan rates and lower fees available to those with exemplary credit scores. This, in turn, can lead to higher customer satisfaction, loyalty and return business.
With access to more complete and comprehensive consumer credit data, online lenders gain a clearer picture of a consumer’s creditworthiness, enabling them to make more informed, and less risky, lending decisions. Reporting also encourages on-time payments. When customers know that lenders report, they are more likely to pay on-time and less likely to default on their debt.
3. Millennials Like Everything Online
Millennials are the perfect match for online lenders. In fact, the latest research from Experian reveals that 47 percent of millennials expect to use alternative finance sources in the near future. And 57 percent reported they are willing to use alternative companies and services that innovate to meet their needs. Millennials are clearly more open to nontraditional banking, but at the same time have a greater expectation of transparency, making it all the more important for online lenders to report credit data.
4. Better Data Quality
Complying with Fair Credit Reporting Act (FCRA) data furnishing requirements might seem daunting for lenders, but there are tools and solutions available to help lenders proactively assess the accuracy of credit data and help identify systemic issues. As a lender, you can measure and monitor quality and completeness, dispute metrics, as well as industry and peer-benchmarking data.
5. Qualify More Applicants
With reporting, lenders can gain access to an invaluable wealth of information that goes well beyond the traditional credit score. Armed with robust analytics, online lenders are in a position to qualify more consumers and small businesses, which creates a significant opportunity to gain long-term customers by improving the overall customer experience.
As you can see, reporting to credit bureaus is a win-win for online lenders. Another big win is when online lenders use the PDF financial file converters from MoneyThumb. We have a version specifically designed for lenders, which makes gathering loan applicants data a breeze and saves time in making informed loan decisions.