A credit bureau is a company that collects, records and sells consumer credit data. The credit data is sold in the form of credit scores and credit reports. Credit bureaus sell consumers’ credit scores and reports to lenders and potential lenders that purchase subscriptions from the credit reporting companies. Credit bureaus also generate revenue by selling consumers their own credit reports and scores. In addition, credit bureaus provide credit monitoring services and allow consumers to place fraud alerts on their records to deter possible identity crime.
The Fair Credit Reporting Act
The Fair Credit Reporting Act, or FCRA, is a set of laws that dictate how credit bureaus must conduct business. According to the FCRA, consumers have the right to see their credit reports, to correct any errors on their reports and to obtain one free report per agency per year. Consumers may purchase additional reports from each agency . If a consumer identifies an error on their credit record, the consumer has the right to dispute the error. When an error is disputed by a consumer, the credit bureau investigates the entry by inquiring with the company that submitted the information. The company is required to provide proof that the entry is valid. If the company is unable to prove the validity of the entry, the entry must be removed from the consumer’s credit report.
The U.S. Credit Bureaus
There are three major credit bureaus in the U.S. TransUnion, Equifax and Experian are each independent companies that collect and maintain the credit histories of anyone who has obtained any type of credit. Each company generates a credit score, known as a FICO score, for each consumer report. Because the agencies collect data from different lenders, the consumer’s information may vary between the three companies.
All three credit bureaus utilize the same service for providing consumers with free copies of their free redit reports each year. AnnualCreditReport.com enables consumers to access their credit reports from the three different agencies, all in one session. When consumers need access to more than one credit report per year, they can subscribe to one of the many credit monitoring services provided by each of the agencies. The cost of such a subscription varies from about $5 per month to about $30 per month. Additionally, consumers may purchase individual copies of their credit reports for a fee. The fee varies according to the agency.
Records Collected and Maintained by Credit Bureaus
Credit reporting agencies collect data from both public sources and private companies. Credit bureaus collect payment history information on credit card accounts, installment loans, revolving credit, medical organizations and hospitals, as well as public information provided by the courts. Judgments and bankruptcies are included on the credit report. If an account is forwarded to a collection agency, this information is recorded on the credit report.
The reason credit granters and lenders utilize the services of the credit bureaus is to minimize risk when extending credit to consumers. Studies show that the best predictor of how an individual will handle a credit account is their past history of paying their bills and managing their credit. Creditors use prior credit history to determine whether or not to extend credit to a consumer. Creditors may also extend credit to consumers with less than perfect credit at a higher interest rate. Credit scores and credit reports are the basis on which lenders make their lending decisions.
The Federal Trade Commission provides extensive information about consumer credit on their website at www.consumer.ftc.gov/topics/credit-and-loans. Understanding the role of that each of the three credit bureaus plays is important, as is maintaining a good credit rating by paying your bills on time, not maxing out your credit accounts and demonstrating that you can handle your finances.