Credit bureaus play an important role in business and finance. But what are they? And what exactly do they do? Knowing just a little about credit bureaus can help you understand a lot about how they can impact your personal financial well-being.
What is a credit bureau?
A consumer credit bureau is the more common name for a consumer reporting agency (“CRA”) or company. Consumer reporting companies collect information and provide reports to banks, credit unions and other companies about you. There are also business credit bureaus that do the same for businesses.
These companies use the reports to inform decisions about providing you with credit, employment, residential rental housing, insurance, and in other decision making situations.
Every time you apply for a loan, make a credit payment, or miss a payment, the financial institution furnishes the information to one or more credit bureau.
Aside from providing credit reports and credit scores, credit bureaus also offer fraud security alert services to help consumers be aware of identity theft. You can check with each credit bureau to see which services are available to you.
Are credit bureaus regulated?
Yes, they are strictly regulated by the Consumer Finance Protection Bureau (CFPB). They are also subject to the requirements detailed in the Fair Credit Reporting Act (FCRA).
How many credit bureaus are there?
There are many different types of credit bureaus, specialty types, regional and national in scope. However, there are three national consumer credit bureaus – Equifax, Experian, and TransUnion. These three companies are often grouped together when people speak about credit bureaus or credit agencies. But they are all separate businesses with separate information files about you. Some of your information may not be reported to all three bureaus every time, which means your reports may vary from bureau to bureau.
What information do credit bureaus collect?
Credit bureaus begin collecting information about your borrowing and payment habits from the time you first open a credit account such as a credit card or a loan. They collect information about your repayment history, the amount of credit you are currently using, and the amount of credit you have available. Credit bureaus also collect details about outstanding debts and public records like bankruptcies, foreclosures, and repossessions.
Why do credit bureaus track your financial history?
Companies that lend money to consumers check with the credit bureaus before making decisions about extending credit. By looking at your credit, a lender can make an informed prediction about your ability to make future loan payments based on your history of paying off other loans. Your credit history is also useful to utility companies and prospective employers. In other words, credit bureaus are a resource for a variety of organizations to help them make better, more informed business decisions.
How do credit bureaus collect information?
Credit bureaus get information about your financial history through financial institutions, businesses, and public records. There is no requirement for lenders to report information, but many volunteer to do so because they depend on credit bureaus to help them make lending and identity verification decisions. Credit bureaus may also obtain information about your salary, date of birth, current and prior addresses, and employers from your credit applications. This information isn’t used to calculate your credit score, but may be used to verify your identify and your ability to afford payments on new loans.
Can you check your credit report and score with the credit bureaus?
By law, you have the right to one free credit report every year from each of the three major credit bureaus. You have to request a copy of your report, but reviewing your report often can help you identify inaccuracies and incomplete information that may affect your score. In addition, some financial institutions provide services that allow you to track your FICO® Score for free each month when it’s updated from the credit bureaus. This service can help you stay on top of your credit more frequently as you work toward a better overall credit score.
Credit bureaus are an essential part of making the world of finance go ‘round. Without them, lending money would be much riskier for banks and businesses, and even more expensive for consumers. Understanding the purpose of credit bureaus, including how they gather and share information, can help you to make informed decisions about your personal finances as you work toward a better financial future.