Credit Reports – How to Look for Warning Signs
Jul 31, 2016
Credit reports are used as a component when evaluating financial capacity to repay loans, but they are also used as part of most background screening reports, such as resident and tenant screening, franchisee screening, country club membership screening, and often also for employee screening purposes. Many people struggle to read and understand the information that is contained in a credit report, plus not all credit reports provide the same information.
Some of the features that are optional components of a credit report, and are not provided by every background screening company include:
Year and State of Issuance of the Social Security Number (SSN), and
Fraud Alerts, such as the Social Security Number is issued to a deceased person.
If an SSN is issued before the year of birth of your applicant, something is awry. It is impossible to have an SSN issued before you are born -- unless there is an input error, there is fraud going on. Further for most people born before 1980, SSNs were generally issued when that person got their first job (usually at age 14 -18), so if an SSN for people born before 1980 was issued soon after their year of birth, it warrants closer inspection.
It should be noted that the Social Security Administration implemented a randomization system in June 2011, which precludes the ability to obtain the Issuance Year and Issuance State for SSNs issued since that time. Of course, this only impacts verifying an SSN's authenticity for recent immigrants and those in a witness protection program, i.e., there are not many 5-year olds applying for credit, a job, a country club membership, or are trying to buy a franchise. However, this will become more of a problem after 2019, when young adults start to enter the workforce, apply for loans, etc.
Another "red flag" is an alert message that the SSN is issued to a deceased person. This optional alert feature checks an SSN against the Death Master File Index. Although this Index has been known to have a very minute error rate, in the vast majority of cases, if this alert appears on the credit report, again unless due to an input error, there is fraud that is occurring.
One other area of concern with credit reports are "light" credit files. These are files that have very little actual credit. If all you see are collection accounts, "rent-to-own" and other non-bank creditors, it is often advisable to perform a Social Search product. A Social Search product will list all names and addresses associated with the persons who have used that SSN when applying for credit and other business purposes. When the Social Search product shows the name of mainly someone else, again it requires more diligence and verification of who you are dealing with.
Learning to interpret credit reports will increase their effectiveness, whether their use is for employee screening, franchisee screening, country club membership screening, or resident and tenant screening.
It should be noted that Reliable Background Screening always includes the optional features listed above in the credit reports that are provided to its clients.
Posted by: Rudy Troisi. President, Reliable Background Screening.