What Is a Credit Bureau or Credit Reporting Agency?
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The three major credit bureaus — Equifax, Experian, and TransUnion — collect and sell information about the credit accounts of U.S. consumers, in the form of credit reports. Credit reports are used by lenders, like credit card issuers, to help decide who to lend money to and what interest rates to set.
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In a world where credit has an impact on much of your financial life, credit bureaus play an important role. You’ve probably heard of Equifax, Experian, and TransUnion. But that doesn’t mean you understand what they do.
Keep reading for a behind-the-scenes look at the three major credit bureaus. While you’re learning more about these three companies you’ll also gain insights into the valuable products they create and sell — your credit reports.
What Is a Credit Bureau?
A credit bureau is a business that collects data related to your credit history. The companies that perform these tasks are also called credit reporting agencies or CRAs.
There are a number of details a CRA may collect about you. With credit obligations in particular, a credit bureau may have a record of your account number, original balance, current balance, credit limit, payment history, and other important dates (date opened, date closed, etc.).
As the credit bureaus collect your information, they must also work to make sure that data remains error-free. There are two reasons why avoiding credit errors is so important.
- Federal credit law (the Fair Credit Reporting Act or FCRA) requires the credit reporting agencies to maintain accurate records.
- The more accurate the information a credit bureau has, the more valuable it is.
Although you can purchase products and services from a credit bureau, as a consumer you are not its primary target customer. Instead, one of the primary ways a credit bureau earns a profit is by selling your information to others.Read more How to Dispute Errors and Mistakes in Your Credit Reports
The 3 Major Credit Bureaus
In the United States, there are a number of consumer reporting agencies that collect data and sell it to businesses with permission to buy it. But the three major credit bureaus, or the “Big 3,” are the companies that most businesses turn to when they need consumer credit information.
The “Big 3” are competitors and do not share information. Rather, they often bump up against each other as they market and try to sell their products to lenders and other companies.
Brief History of the Credit Bureaus
Credit reporting has been around for a couple of centuries, though not with the sophistication we see today. Early credit reporting can trace its roots back to the 1800s. Both Equifax and Experian got their starts during this era. TransUnion, meanwhile, is a much younger company.
- Equifax: Two brothers — Cator and Guy Woolford — founded the Retail Company in 1899 in Atlanta, Georgia. The company later changed its name to Equifax Inc.
- Experian: The largest credit bureau, Experian, traces its beginnings back to London in 1803. A group of tailors joined together to share information about customers who didn’t pay their debts.
- TransUnion: The baby of the three major credit reporting agencies is TransUnion. The credit bureau started as a parent holding company for Union Tank Car Company in 1968. But it soon began to acquire smaller credit bureaus and make upgrades on the data reporting processes to update consumer files.
How Do the Credit Bureaus Get Their Information?
Thanks to computers and software engineers, credit reporting agencies now have the ability to process large amounts of data. In fact, each of the major credit bureaus maintains around 220 million consumer credit files.
But where does all of this credit report information come from?
The three credit bureaus collect consumer credit information from businesses. Banks, credit card issuers, debt collection agencies, lenders, and other companies all send data to the credit bureaus — often on a monthly basis. We call the companies that provide information to the credit bureaus data furnishers.
There are a few interesting facts you should know about the credit reporting process.
- Credit reporting is 100% voluntary. No law requires any company to share information with the credit agencies. But for providers that do supply account details to the credit bureaus, all the information they share must be accurate.
- The credit bureaus don’t pay data furnishers for information. That’s not the motivation behind sharing data with the credit bureaus. Instead, these businesses send customer information to the credit bureaus in the interest of mutual protection.
Having access to consumer credit history helps companies reduce risk and improve collection efforts. It also provides a better foundation from which to approve or reject credit requests from new applicants.
What Types of Information Can You Find on Credit Reports?
The credit bureaus have a lot of information about you — more than you might think.
These companies likely know what street you lived on more than a decade ago. Who you worked for and when may also appear on your credit reports. And the credit bureaus also know your payment history, credit card management habits, and much more.
Here are the types of credit information your reports might contain:
- Personal Identifying Information (PII): Your name, addresses where you have lived, Social Security number, date of birth, and a history of your employers may all show up on your credit reports.
- Credit Accounts (aka Tradelines): This section of your credit reports can include a variety of accounts. Credit cards, student loans, mortgages, or personal loans may all appear in this area. You may also find details like account numbers, balances, credit limits, and dates (account opened, closed, last activity, etc.). Finally, the status of the account may appear as well, such as opened, closed, past due, charged-off, or settled.
- Collection Accounts: Lenders may turn over unpaid accounts to a collection agency. These debts can then show up on your credit reports as collection accounts. Learn about getting inaccurate collection accounts removed from your credit reports.
- Public Records: Bankruptcies may appear in the public records section of your credit reports. In the past, judgments and tax liens were on credit reports, too. But the credit bureaus opted to remove that data after making a settlement agreement called the National Consumer Assistance Plan.
- Credit Inquiries: When you apply for financing and a credit card issuer or lender accesses one or more of your credit reports, a record of that access shows up on your reports as a “hard inquiry.” Hard inquiries can remain on your credit reports for up to two years.
Your credit scores (like a FICO Score or VantageScore credit score) are not part of your credit reports. A credit score is an add-on product that is separate from your credit history.
What Happens With the Information in Your Credit Reports?
As you can see, your credit reports contain a vast amount of data about your life and your ability to repay debt. Lenders may also opt to purchase a copy of your credit score to make it easier to evaluate your credit history.
A credit score is a mathematical representation of your creditworthiness. A higher score means you’re more likely to repay your debts as agreed. A lower score means you’re more likely to default.
The credit bureaus do not make lending decisions. Neither do credit score developers like FICO or VantageScore, for that matter. These companies merely supply the data that helps others predict risk.
Armed with a copy of your credit report and credit score, businesses like credit card issuers, lenders, and others can make informed credit decisions. Your credit information helps companies decide whether to approve or deny your applications, and the interest rate to charge when you do qualify for financing.
Credit Reporting Regulation
The credit bureaus have a number of federal and state laws they must follow. The chief federal law that governs the credit bureaus is called the Fair Credit Reporting Act (FCRA).
After credit reporting began to expand in the 1960s, Congress enacted the FCRA in 1970. The FCRA aimed to accomplish several goals, including:
- Preventing the misuse of sensitive consumer information: Access to your credit reports is limited. A business must have a legal purpose (called a “permissible purpose” in the FCRA) for doing so.
- Improving the accuracy of consumer reports: People’s lives are deeply affected by their ability to borrow money. So, the FCRA provides a system (aka the dispute process) for consumers to challenge incorrect information on their credit reports.
- Promoting efficiency in the banking and consumer credit systems: When lenders, insurance companies, and other companies have access to accurate information about potential borrowers, they can make better decisions more quickly.
Check Your Credit Reports
The three major credit bureaus have a lot of information about you. Those details can have a meaningful impact on your financial life. Your credit reports can either make it easier or more difficult to access essential products and services — from loans and credit cards to apartments and utilities.
Because your credit is so impactful, it’s critical to know what’s on your credit reports. The good news is you can get free credit reports annually, thanks to the FCRA.
In 2003, Congress amended the FCRA with the Fair and Accurate Credit Transactions Act (FACTA). The amendment entitles you to receive one free copy of your credit report from each credit reporting agency once every 12 months.
Be careful when looking to order your free credit reports online. There is only one official website to order your free copy: annualcreditreport.com. You can also call 1-877-322-8228 to request your free reports over the phone.
Be prepared to provide your name, address, Social Security number, and date of birth. Each credit bureau needs this information to verify your identity.
You are not entitled to a free credit score under the FCRA. However, there are a number of ways to access a free credit score online.
How to Handle Credit Errors
Inaccurate or incomplete information on your credit reports can be a serious problem. In some cases, these problems could even be a warning sign that you’re a victim of identity theft.
If your reports contain errors or fraud, a lender might view you as a bad credit risk. You might have problems qualifying for a mortgage, an auto loan, a credit card, and more.
Your credit history can also be a determining factor when it comes to you getting hired, approved for an apartment, or rated and priced for an insurance policy. Credit errors have the potential to work against you in all of these situations. You cannot afford to ignore mistakes on your credit reports.
On a happier note, disputing credit report mistakes is free. You can manage the dispute process on your own, or hire a reputable credit repair company to handle it for you.
You have the right to dispute credit report mistakes on your own. Our guide on correcting errors in credit reports can walk you through the steps you need to follow to dispute errors with the credit reporting agencies.
Note: If you hire a credit repair company it will charge you a fee. You should also be sure you’re working with an honest business if you decide to pay someone to send disputes to the credit bureaus on your behalf.
The credit reporting agencies collect a lot of information about you. And, like it or not, you don’t have the ability to stop this type of data collection. However, thanks to the FCRA you can discover exactly what the credit bureaus know related to your credit history.
It’s important to review your three credit reports frequently. When you review your reports, be sure to address any inaccurate information you discover. You can also look for red flags that might worry lenders, and search for ways to improve your credit rating.
Michelle Lambright Black is a leading credit expert, author, writer, and speaker with over a decade and a half of experience in the credit industry. She is an expert in credit reporting, credit scoring, financing (mortgages, credit cards, loans), debt eradication, budgeting, saving, and identity theft. She is featured monthly at credit seminars, podcasts, and in print. You can connect with Michelle on Twitter (@MichelleLBlack) and Instagram (@CreditWriter).
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