A credit bureau is an agency that collects borrower’s credit information and reports it to lenders and creditors so they know how trustworthy you are when taking out a loan or line of credit. The three main credit bureaus are Experian, Equifax, and TransUnion.
Credit bureaus, also known as credit reporting agencies (CRAs), are institutions that gather, organize, and report credit information about consumers in a given country.
These reports provide financial institutions with a credit score that reflects a potential borrower’s performance on their past credit experiences, which helps to measure the potential risk involved in extending them a loan or line of credit.
The history of credit bureaus can be traced back to British merchants during the 17th century. These merchants began sharing information about the credit situation of their clients to prevent others from extending credit lines to individuals who have failed to fulfill their financial obligations in the past.
In the United States, specifically, credit bureaus started to emerge as organizations formed across the nation to help merchants choose who they extended credit lines to. Back then, these institutions did not communicate with each other, and they were mostly formed by local businesses that shared information about their customers to form a rudimentary database with client’s information, including their names, addresses, and a brief record of their payment history.
During the 1970s, the introduction of the Fair Credit Reporting Act (FCRA) helped the industry organize these credit reporting agencies, and today’s largest credit bureaus started to form their structures by using technology to improve the efficiency of their processes.
Today’s largest credit reporting agencies in the United States have helped to shape the industry and its practices.
A credit bureau collects detailed information about credit accounts held by consumers, including:
This is just part of the information reported by a credit bureau. Many other data points are also included and used for the assessment of an individual’s credit situation and for the calculation of their credit score.
Considering the impact that credit bureau’s activity has on consumers and their capacity to borrow funds, the Fair Credit Reporting Act (FCRA) introduced regulations to protect consumers against practices that may harm them, including:
These and other rights not specified in the list were established by the FCRA to protect consumers, and credit reporting agencies must establish procedures that will enforce these rights.
Credit bureaus are not government-backed institutions, even though their activities are heavily regulated due to the access that they have to sensitive information about consumers within the country. Instead, credit bureaus are private, for-profit corporations that generate revenue by providing services such as:
Additionally, credit bureaus offer an ample portfolio of business services, including banking solutions, account verification, consumer reports, and risk assessments, among many others.
Three nationwide credit reporting agencies gather, organize, and report credit information for millions of consumers in the United States: Equifax, TransUnion, and Experian. This is a brief summary of their history and how they became the largest credit bureaus in the country.
Equifax’s history can be traced back to the 1900s when Cator and Guy Woolford founded the Retail Credit Company in Atlanta. By the 1960s, the business had grown to become one of the largest credit reporting agencies in the country, with offices in the nation’s largest states and millions of consumers in their database.
In the 1970s, as a result of the introduction of the FCRA, the company was renamed as Equifax, and ever since then, it has become a household name in the credit reporting industry around the world. Today, the company has subsidiaries in more than 24 countries and a presence in Europe, Asia, the Americas, and Australia.
Additionally, the company reports that it has information on more than 800 million consumers and 88 million businesses across the world.
In TransUnion’s early beginnings, the company was not associated with credit reporting at all. In fact, it was initially founded as the Union Tank Car Company and was primarily a railroad leasing business.
In 1969, the business acquired the Credit Bureau of Cook County and entered the industry for the first time. Since then, the company has grown to become one of the largest credit reporting agencies in the world, processing information for more than one billion consumers throughout the globe with operations in more than 30 countries.
Experian’s history started back in 1968 when TRW Inc. acquired a company called Credit Data that was later on renamed as TRW Information Systems and Services Inc. Since then, this organization has become one of the largest credit bureaus in the U.S., holding information on more than 235 million U.S. residents and 25 million U.S. businesses.
Additionally, Experian has a presence in more than 37 countries throughout the world, including Brazil, Mexico, and Argentina, and the company is based in Dublin, Ireland.
Other institutions also provide third parties with information about consumers’ credit situations, including:
While each credit bureau has its own credit scoring model, most of them rely on the FICO credit scoring model. FICO credit scores are calculated by analyzing five different variables regarding an individual’s credit situation:
When these variables are weighed together, the scoring model generates a credit score that typically ranges from 580 to 800.
These results provide an assessment of a borrower’s creditworthiness that can be understood as follows:
The Fair Credit Reporting Act (FCRA) gives borrowers the right to dispute items on their credit reports that are believed to be inaccurate, incomplete, or that cannot be backed by sufficient evidence.
Credit bureaus must provide adequate channels for borrowers to file disputes based on the FCRA stipulations, and these disputes must be handled adequately to ensure that any mistakes made on the report are corrected promptly.
Consumers should review their reports periodically to make sure they accurately reflect their credit situation, and if consumers ever find wrong or incomplete information, they can follow these steps to file a dispute with the credit bureaus:
Both credit reporting agencies and providers will typically act promptly on any valid claims to delete or modify the credit information to make sure new reports accurately reflect the consumer’s credit situation.
Most of the activity of credit bureaus is focused on consumer credit, but some institutions also track commercial credit. The most common scores produced for commercial credit assessment include:
All nationwide credit bureaus produce a version of commercial credit scores, and lenders and businesses employ these scores to decide whether a company should be approved for a line of credit based on its past payment history and other variables.
Credit bureaus are institutions that gather, organize, and report information about the credit situation of consumers and businesses in the United States and around the world. The largest credit bureaus in the U.S. are Experian, Equifax, and TransUnion, and they process information for millions of Americans.
The activity of credit bureaus is regulated by the Fair Credit Reporting Act (FCRA) along with other laws enacted to give consumers certain rights on the information reported by these institutions.
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