Credit Bureau

Credit Bureau
Credit bureaus are businesses that compile your credit history and calculate your credit score. They provide this information to lenders—among others—who use it to decide whether to grant you a loan.

Credit Bureau

How do Credit Bureaus work?

There are three main credit bureaus in the United States: Experian, TransUnion, and Equifax. They gather your financial information to create your credit report. The information in your credit report dates back seven years and paints a thorough picture of your finances, debt, and payment behavior. The credit bureaus use this information to calculate your credit score, which is also known as a FICO score.

Credit bureaus provide your credit report and credit score upon request to lenders, landlords, employers, and insurance companies, among others. (Basically, anybody with a “permissible purpose” can obtain your credit report.1) Your credit report and score can be sought by many different businesses and used for many different reasons. Lenders might use them to decide whether you receive a loan, an insurance company might use them to determine the rate you pay, and a landlord might use them to decide whether or not to rent to you.

You can view what’s in your report by obtaining a free credit report, which you are entitled to do once a year from each of the three credit bureaus.

Credit bureaus are also known as “credit reporting agencies,” or CRAs.

What kind of information do Credit Bureaus collect?

Credit bureaus collect four basic categories of information:

Identity: Your name, age, address, employment, and social security number.

Credit: This consists of information about your past and present loans and credit cards. Credit bureaus collect information like the loan amounts, how much of the credit limit you used, and whether you regularly made payments.

Public record: Any bankruptcies, tax liens, or court judgments you might have.

Inquiries: How many times other lenders and credit card companies, among others, have checked your credit report. If they’ve checked it a lot, it probably means you’ve applied for and been denied credit a number of times, and this can lower your credit score by a few points.2

How do Credit Bureaus calculate my credit score?

Credit Bureaus use the information in your credit report to calculate your credit score. Your credit score is a number between 300 and 850, and the higher it is, the better your credit.

Credit bureaus look at a number of factors to determine your score. Here’s how the FICO score breaks down:

Payment history: This counts for 35 percent of your score. It’s very important to lenders (and others) that you have a history of making payments on time.

Amounts owed: This counts for 30 percent of your score. Owing too much on your loans will negatively affect your score.

Length of credit history: This counts for 15 percent of your score. In general, a longer history of using credit is good. However, a longer history of using credit irresponsibly will lower your score.

Credit mix: This counts for 10 percent of your score. Your credit mix takes into consideration the different kinds of loans and credit accounts you’re currently using.

New credit: This counts for 10 percent of your score. If you have a number of recent credit inquiries, a lender might see that as a potential risk.3

Do Credit Bureaus determine whether or not I get a loan?

No. They do not. The ultimate decision is up to the businesses that request your credit report. Credit bureaus do not decide whether you are going to get a loan, rent an apartment, or be offered a new job. All they do is compile and distribute your credit report and score.

Do I have to pay a Credit Bureau to receive a copy of my credit report?

No. All three credit bureaus are required by law to provide one free credit report per person on an annual basis. This means that you can get three free credit reports every calendar year. To get a free copy of your credit report, visit www.annualcreditreport.com.

Are Credit Bureaus government agencies? Are Credit Bureaus nonprofits?

No. Credit bureaus are not operated by the government and they are not nonprofits. They are private companies that make money by analyzing and selling data. They offer four main products:

Credit services: Credit bureaus sell your credit report to lenders and other businesses that request it. Typically, any application fee you pay—say, when you apply to rent an apartment—is intended to cover this expense.

Decision analytics: Credit bureaus review your credit history and provide lenders with an analysis to aid them in making decisions about granting you a loan, for instance.

Marketing: Credit bureaus sell credit reports to lenders who make pre-approved offers (like a pre-approved credit card, for instance) and want to review them.

Consumer services: Credit bureaus offer consumer services like credit monitoring, identity theft protection, and fraud prevention.4

How often Credit Bureaus update information in credit reports?

Credit bureaus update the information in your credit report continuously. New information—if there is any—may be added multiple times a day.5

Where can I file a complaint about a Credit Bureau?

You can file a complaint about a credit bureau with the Consumer Financial Protection Bureau.

If you find errors on your credit report, you can correct them by writing a letter to the credit bureau that produced it as well as the business (your lender, for instance) that provided the inaccurate information. Use a sample dispute letter and follow the instructions that the government provides on how to dispute errors.

Bottom Line

Credit bureaus play a critical role in the consumer credit system. The information they collect can have a huge impact on your life—whether you receive a loan, what interest rates you pay, and whether a landlord decides to rent to you, for instance. Request a free credit report so you know what’s in your credit report and what information is being shared about you.

References:

1 “Who Can See My Equifax Credit Report?” Equifax, https://help.equifax.com/app/answers/detail/a_id/165/~/person(s)-and-entities-that-have-access-to-your-equifax-credit-report-(us. Accessed 15 March 2017.

2 Lee, Jenna. “The Difference Between Hard and Soft Credit Inquiries.” U.S. News Money, 24 July 2014, http://money.usnews.com/money/blogs/my-money/2014/07/24/the-difference-between-hard-and-soft-credit-inquiries. Accessed 15 March 2017.

3 “What’s In My FICO Scores?” myFICO.com, http://www.myfico.com/credit-education/whats-in-your-credit-score/. Accessed 15 March 2017.

4 “How Do Credit Bureaus Make Money?” Investopedia, 28 Oct. 2014, http://www.investopedia.com/ask/answers/102814/how-do-credit-bureaus-make-money.asp. Accessed 15 March 2017.

5 “Credit Information Is Updated Continuously.” Experian, 15 July 2016, http://www.experian.com/blogs/ask-experian/credit-information-is-updated-continuously/. Accessed 15 March 2017.