The Credit Bureaus

The credit bureaus are basically the company that is responsible for the development of your credit score. Its responsibilities include the collecting of information from various reporting sources, organizing and tracking the information of the many millions of people who have credit profiles. Credit bureaus in essence help other organizations or individuals access the level of creditworthiness that an individual possess. This is ultimately based on previous credit history that has been collected by the credit bureaus in development of the credit score.

The credit score as issued by the credit bureaus is used by organizations not only to determine if an individual is allowed a loan but it also affects the terms and costs of loan products too. An individual’s credit score will affect the interest rate of a loan, its payment terms and also its duration as offered by the lender. This is a risk based pricing model where those with worst credit scores have to pay more for their loan products to off-set the increased risk that the lenders see. Although this is in effect price discrimination, it has shown to work and is a model that is wholly adopted by the finance industry.

The source of all the information that the credit bureaus use are wide and varied. They will take information from any data furnishers which are registered with the bureaus. These are typically any creditor that has a financial relationship with the said individual. They can also include utilities providers, collection agencies, government link agencies, courts and even your landlord if you don’t keep up payments well. It is very much based on a trust basis with regards to the reporting of the credit infractions made. Some reporting agencies will report even the slightest delay in payment while others will have a more lenient approach.

All the data that has been collected by the credit bureaus are aggregated into their data banks and the resulting report is what is made available to the customers of the credit bureaus who want the information about the creditworthiness of an individual. The information about a person’s creditworthiness isn’t only used for deciding the availability of loan products to a person but for other equally important things too. These include consideration on employment opportunities, consideration on leasing of properties or any number of products or services that a regular individual might normally be exposed too.

Almost all consumer advocate groups would recommend that people check their own credit report regularly to ensure that no mistakes are made. Although the system serves a very useful function and is widely recognized in the financial industry, it is still plagued with problems with regard to the accuracy of the reporting system. The method in which the credit score is derived is very mechanical and that it takes the many variables that are fed into the system to come out with an estimation on the likelihood a person will repay his/her debt and how long it will take. The problem is the raw data that is fed into the system to derive the credit score is often wrong or misrepresentative. It is up to the individual to look up their credit report and make sure that all the information listed there is accurate. If it isn’t then they have to start the dispute program to set the records straight. The credit bureaus that store all the credit score information are Equifax, Experian and TransUnion. They are all separate companies and have procedures that are different from each other.

The Laws that are Involved

In legal terms, credit bureaus are called “consumer reporting agencies” and falls under the purview of the Federal Trade Commission (FTC) which controls the actual functioning of the credit bureaus while the Controller of the Currency (OCC) oversees the charter, regulation and supervision of banks and the quality of data that they provide to the credit bureaus. The rules in place to protect consumers against erroneous reporting are the federal Fair Credit Reporting Act (FCRA), the Fair and Accurate Credit Transactions Act (FACTA), the Fair Credit Billing Act (FCBA) and Regulation B.

Although the main credit bureaus are Equifax, Experian and TransUnion, there are others that also provide supplementary services in addition to the credit reporting and scoring. They will perform the task of analyzing and reselling the information to those who need additional information about other habit and trends that the individual posses. It should be noted that these resellers mostly provide opinions on what the individuals habits represent and because of this opinion it is very hard to regulate. Most of the acts that are used to regulate the main credit bureaus are ineffective in regulating the supplemental service agencies and it is because of this that you should be weary of them.