Credit Bureau
What is a Credit Bureau?
A company that gathers consumer credit information from different sources is known as a credit bureau. This information can be used for a variety of purposes such as:
• Assisting lenders in determining credit worthiness
• Assisting lenders in determining interest rates
• Assisting lenders in determining ability to repay loans
• Employment Consideration
• Apartment Leasing Consideration
Credit bureaus in the U.S. gather and collate individual consumer data relating to financial and personal information. This information comes from sources known as data furnishers. The data furnishers usually consist of lenders, utility companies, creditors, debt collection agencies and court issued public records. The individual consumer payment information is reported to the credit bureau and deposited into the bureau’s records.
How Credit Bureaus Use Information
Information collected by a credit bureau can be requested by the customers of that credit bureau. Due to the volume of consumer borrowers, individual lending actions may be too numerous to reasonably assess. To simplify the lending process, credit bureaus use a mathematical algorithm to create an overall credit score. This is used to give an indication of the likelihood of the consumer to pay back a debt. This is based on the frequency of other creditors defaulting in similar situations.
Consumer welfare advocates will advise that consumers look over their credit reports on an annual basis. This is to ensure the accuracy of those reports. This service is available at no cost to the consumer. By law, a consumer is entitled to obtain an annual credit report for each of the three consuming agencies, nationwide:
• Equifax
• TransUnion
• Experian
The Internet site that is maintained by these three companies in order to provide the free report is annualcreditreport.com.
There are also commercial credit reports and credit scoring available, as well. These are used to determine the likelihood of businesses paying their creditors. Examples of commercial credit reports from credit bureaus are:
• Paydex
• Dun & Bradstreet
• Experian Intelliscore
• Cortera CPR Score
Credit Bureau Legalities
The legal term for a credit bureau is “consumer reporting agency”. This terminology falls under the Fair Credit Reporting Act (FCRA), which is federally regulated. The FCRA regulates governing guidelines for both data furnishers and credit bureaus. The purpose is to provide consumer protection. Additionally, the Fair and Accurate Credit Transactions Act (FACTA) and the Fair Credit Billing Act (FCBA) regulate credit bureaus.
The oversight of credit bureaus is also the responsibility of The Federal Trade Commission (FTC) and the Office of the Comptroller of the Currency (OCC). The OCC regulates, charters and provides national bank supervision for data provided to credit bureaus.
Credit Reporting Agencies
The collection of most consumer credit in the U.S. is performed by four national credit reporting agencies:
• Equifax
• Experian (which purchased assets of TRW)
• TransUnion
• Innovis (purchased by CBC Companies from First Data Corporation)
These are considered for-profit businesses with no government affiliation. Even though the groups are competitors, they have formed the Consumer Data Industry Association (CDIA). This is designed to credit reporting standards. In addition, the CDIA lobbies on behalf of credit bureau industry issues, in Washington.
The annual CDIA publication, known as the Credit Reporting Resource Guide, outlines and defines the current credit reporting standards.
There are many other collection and reporting agencies that will analyze and market information about consumers. Some will compile credit data from multiple credit resources. Customized analysis tools are also offered as options to lenders.
Additional Resources
Additional resources can include “alternate credit bureaus”. An example of this is Payment Reporting Builds Credit, Inc. (PRBC). This bureau began in March, 2002 and enables consumers to self-enroll. The goal is to build a positive consumer credit file through the reporting of on-time payments. The payments that can be reported are: utilities, cable, rent and phone which are generally not reported to the three major credit bureaus on an automatic basis.