A credit bureau is an organization that collects individuals’ credit information from various data providers. This information is then made available to creditors for a fee. Creditors use this information to make lending decisions.
Credit bureaus are also called ‘credit reporting agencies’ or ‘credit reporting companies’. There are several credit bureaus in the U.S but the three major agencies are Experian, Equifax, and TransUnion.
A credit bureau acquires its information from various data providers including banks and other creditors, debtors, vendors, debt collection agencies and public court records. The primary purpose is to help creditors get easy access to the information they need to make lending decisions.
The information that is collected varies from one credit bureau to another.
Most focus only on details related to your credit history. This includes repayment history, amount of credit available, credit limit on the account and amount of credit you’re using. Also included are outstanding debt collections and public record details such as bankruptcy, foreclosure, tax liens, and repossession. These details are collected starting from the time you opened your first credit account.
Some credit bureaus maintain more comprehensive information including history related to payments on rent, utility bills, phone bills and more.
Every credit bureau uses their own methodology to calculate your credit score based on the information they’ve collected. Your financial history and credit score are provided to lending institutions and credit issuers on request. Typical organizations that use this information include credit card issuers, private lenders, banks, insurance companies, and mortgage lenders. Employers and landlords may also request this information to make decisions about hiring you or renting out to you.
Credit bureaus only collect and process your financial details and provide this information to lending institutions. They do not make actual lending decisions.
The decision to extend credit depends solely on the lending institution. The credit bureau does not play a direct part in this decision. However, the information contained in their reports can have a significant impact on your ability to get credit. It also affects the terms on which you get credit.
The Fair Credit Reporting Act (FCRA) is a federal law that regulates credit bureaus and how they operate. Its main aim is to protect consumers from intentional or unintentional fraudulent information in their credit reports. All credit bureaus must comply with the FCRA’s guidelines regarding the use and interpretation of consumer data.
The FCRA was updated in 2003 to give consumers the right to one free annual credit report from each of the credit reporting agencies. If you find any errors in this report, you can dispute the error with that agency. According to the FCRA guidelines, the credit bureau is required to investigate, correct all identifiable errors, and recalculate your credit score.
In addition to getting one free credit report every year, you may also request a free report under any of these circumstances:
Although each of the credit bureaus reports and calculates information differently, they all include the same four categories of information:
This includes your name, Social Security Number, birth date, address, and employment information. Updates to these details are collected from lenders when you apply for new credit. Your personal information is not used to calculate your score. It is only used by businesses and potential employers to verify your identity.
This information is provided to credit bureaus by lenders with whom you have a credit account. It includes the type of account (mortgage, credit card, etc.), date of opening the account, loan amount or credit limit, and payment history. It also includes whether or not all payments were made on time. These are the most important details used for calculating your credit score.
This section includes a list of everyone who requested a soft or hard credit check within the previous two years. These inquiries get added on to your report when you apply for a credit card or loan and authorize the creditor or lender to do a credit check. Only you can see the soft inquiries. Lenders can only see the hard inquiries.
Public record information is collected from county and state courts. This section includes details about debt that is overdue and sent to collections, foreclosure, repossession, tax liens, and bankruptcies. A Chapter 13 bankruptcy remains on your report for 7 years from the date of filing. A Chapter 7 bankruptcy stays on your report for 10 years from the date of filing.
There are two main reasons why your credit score may differ from one credit bureau to another.
Firstly, each credit bureau gathers information from different sources. Creditors update the credit bureaus with your account status and payment history. The bureaus use these two factors in calculating your credit sore. However, not all creditors report to the three major credit bureaus. Some may report to only one, only two or none at all. As a result, your credit reports from different credit bureaus do not contain the same information.
Secondly, each credit bureau also uses their own credit scoring model adding to the differences in the scores. Creditors understand how to read the reports from the different bureaus so you don’t need to stress about these differences.
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