Collaborative Standardization: The Case for Future-Proofing Data Furnishment
The credit data reporting sector is at a standstill. Despite a credit and lending landscape undergoing radical transformation, how related data is reported and scored has struggled to keep up.
It’s time for change.
New types of alternative data, from rent and utility payments to subscription services, hold the power to change how creditworthiness is assessed. Simultaneously, innovative lending products, such as credit-building tools and financial apps, are emerging to meet the needs of underserved populations. These developments present both opportunities and challenges for the credit reporting ecosystem.
The crux of the problem is how we look at data — and which types of data we look at. On some level, the evolution of credit modeling is already happening. As more data becomes available, models get updated to offer more granular views of a consumer’s ability to repay. However, a couple of variables impede progress here. Firstly, the way new data gets incorporated may not be happening fast enough to maintain pace with newer, more relevant indicators of willingness to repay. Secondly, lenders are often slow on the uptake of newer models (like VantageScore 4plus™ or FICO 10) that provide more accurate assessments by incorporating more robust data. The end result is the same: a lack of good data means segments of consumers are getting boxed out of credit access — and the entire ecosystem suffers for it.
In short, current credit models and data practices can be augmented to better serve both industry players and consumers alike. Now is the time for key stakeholders — lenders, credit bureaus, data furnishers, and regulators — to come together and standardize credit data reporting.
Without swift action, the problems plaguing the industry will worsen, leading to greater inefficiencies, inaccurate credit assessments, and missed opportunities to extend fair and responsible credit to millions of consumers. The solution lies in industry-wide collaboration, driven by a unified effort to modernize data furnishing. As a leader in credit data technologies, Bloom is committed to facilitating this necessary transformation, pushing industry players to engage in challenging but vital conversations.
The Growing Complexity of Credit Reporting
The influx of alternative data and new credit products has added layers of complexity to the already intricate (and precarious) credit reporting system. Historically, one’s credit history and ability to repay were based on traditional data points like loan repayments, credit card balances, and mortgage payments. However, this model disregards the reality that consumers’ financial behaviors are increasingly reflected in non-traditional data streams, especially in today’s data-driven world. Rent payments, utility bills, and even the consistency with which someone pays for streaming services have become valuable indicators of creditworthiness. More importantly, a more comprehensive view that incorporates these diverse data points offers more substantive insights into a person’s ability to repay.
At the same time, products aimed at helping consumers build or rebuild credit, such as secured cards or mobile apps targeting previously unbanked populations, are proliferating. These innovations offer immense potential, but they also introduce new challenges. The lack of standardized data reporting practices among lenders, credit bureaus, and data furnishers means that alternative data is often collected and reported inconsistently, resulting in credit scores that may not accurately reflect a consumer’s true financial profile. In the worst cases, they leave consumers with no credit file at all. That lenders are often operating on older (at times, outdated) scoring models adds more complexity to the mix.
This lack of uniformity creates significant problems. A consumer who has a long history of on-time rental payments, for example, may not receive full credit for their financial reliability if their lender doesn’t report the data in a standardized way — or at all. These inconsistencies lead to inaccurate or incomplete credit assessments, which can mean higher interest rates, denied credit, or reduced access to financial products. In short, the current system cannot handle the rising complexity of modern credit reporting.
The Impacts of a Broken Credit Reporting System
The flaws in the current credit reporting system are well-documented. Traditional credit models have struggled to keep pace with the rapidly changing financial landscape, and those that try are often underutilized by lenders. As a result, many consumers — especially those with thin credit files or non-traditional financial backgrounds — are unfairly disadvantaged.
In today’s system, each bureau relies on different practices for handling and interpreting credit data, leading to discrepancies and fragmented data collection and reporting. As a result, consumers can have different credit scores depending on the bureau pulling the report or the specific data being furnished. This inconsistency harms consumers, who may be unable to access credit, and also burdens lenders, who risk making lending decisions based on incomplete or erroneous data.
Moreover, as new credit products and alternative data streams enter the picture, these problems are only likely to intensify. If the system cannot effectively integrate these new forms of data and modern lending products, it will fail to provide accurate, fair credit assessments. This failure will be felt most acutely by the consumers and communities that stand to benefit the most from financial inclusion and innovation.
The Problem Demands Industry Collaboration
Fixing these issues and future-proofing credit reporting requires a unified approach from within the financial services industry. Lenders, credit bureaus, data furnishers, and regulators need to work together to standardize reporting practices. This collaboration will not be easy — each player has its own interests, competitive pressures, and operational challenges — but it is essential.
The need for industry cooperation is underscored by the increasing interconnectedness of financial services. As the industry becomes more digitized and data-driven, isolated silos only create friction. A truly effective credit reporting system must be holistic, reflecting the full scope of consumers’ financial lives, whether they are paying a mortgage, renting an apartment, or using a credit-building app.
The benefits of standardization to all parties — from consumers to lenders, credit bureaus, and regulators — should be a compelling reason to press ahead. Lenders will gain access to more reliable and comprehensive data, enabling them to make better lending decisions and reduce the risk of defaults. Credit bureaus will have the ability to provide a more robust, accurate credit history, widening access to mainstream credit. Regulators will have a more transparent and accountable system to oversee, making it easier to ensure consumer protection and fair lending practices. And consumers will enjoy more fair, inclusive, and equitable access to credit.
Bloom Aims to Facilitate the Conversation
As a leader in the credit data ecosystem, Bloom is uniquely positioned to drive this much-needed collaboration. Our API platform connects lenders, bureaus, and furnishers, offering the technological infrastructure necessary for standardizing data reporting across the board. Additionally, our award-winning consumer-permissioned data solution, Bloom+, helps financial institutions attract new customers while expanding access to affordable credit. Bloom’s expertise lies not only in facilitating the sharing of data but also in building consensus on best practices for credit reporting.
Bloom is committed to fostering dialogue between all stakeholders, including lenders, bureaus, furnishers, and regulators. We recognize that modernizing the system requires difficult conversations, and we are prepared to lead these discussions. Our goal is to provide a neutral platform for collaboration, helping industry players move beyond competitive tensions to work together to create a more equitable and efficient credit reporting system.
Of course, collaboration is not without its challenges. Resistance to change, concerns over data privacy, and regulatory complexities all pose potential roadblocks to industry-wide standardization. However, these challenges can be overcome through phased implementation, transparency, and pilot programs that demonstrate the value of standardized reporting.
Bloom advocates viewing this challenge not as a threat but as an opportunity for innovation. Collaboration empowers the industry to create a system that benefits everyone, from underserved consumers to traditional financial institutions.
A Vision for the Future of Credit Reporting
The credit reporting system is at a crossroads. With the influx of new data types and financial products, the system must evolve or risk further fragmentation and inefficiency. An opportunity exists to improve the entire credit ecosystem with more comprehensive data; however, without industry-wide collaboration, we risk shutting out broad segments of consumers who might otherwise be able to access credit. The time for collaboration and standardization is now. Only by working together can the industry build a future-proof credit reporting model that ensures fairness, transparency, and financial inclusion.
Bloom is committed to leading this transformation. We believe that, through open dialogue and cooperation, the credit reporting ecosystem can be modernized to meet the needs of consumers, lenders, credit bureaus, and regulators alike. Now is the moment for all stakeholders to come together and shape the future of credit reporting — for the benefit of all.
