What is a Credit Bureau?

Credit rating agency buildingWith the influx of personal and business lenders in the financial market over the past few decades, it has become increasingly necessary to have a system in place that provides relevant information on borrower risk. The credit bureau system was designed to achieve that end, as it acts as the organization responsible for compiling information from lenders regarding the credit behavior of borrowers. A credit bureau is an independent entity that allows subscribers, or lenders, the ability to easily access credit application history, repayment history, default history and total debt obligations of borrowers to determine overall creditworthiness.

Who Utilizes Credit Bureau Information?

Subscribers to credit bureaus are mostly lenders, such as credit card issuers, financial institutions that offer lending products, private loan companies such as auto finance organizations, and the federal government. These subscribers not only use information stored with credit bureau organizations, but also provide information on current loan or credit account balances, minimum payments due and missed payment histories.

In addition to conventional lenders, other businesses that have a need or desire to access information on potential or current customers can subscribe to credit bureau systems. These additional companies may include cable or Internet providers, mobile phone providers, and commercial or residential real estate leasing offices. Each subscriber pays a fee to the credit bureau it utilizes in order to access borrower information for the purpose of evaluating default risk.

Consumer Use of Credit Bureaus

Consumers also use credit bureau information to manage total indebtedness. Individuals have the opportunity to access credit bureau data by requesting a credit report, or by visiting one of the three major credit bureaus online.

Information located in one’s credit report includes

  • total credit,
  • loan accounts currently open,
  • closed credit or loan accounts,
  • minimum payments due on outstanding balances,
  • total account balances,
  • default on repayment
  • history of late payments,
  • credit inquiries made by subscribers,
  • addresses,
  • telephone numbers,
  • employment data,
  • public record items such as civil judgments, tax liens and bankruptcy.

This information is useful to consumers not only for understanding total debts owed, but also in having the ability to review information for accuracy. Detection of fraud, misinformation or gross errors can be reported directly to the credit bureaus for review, research and correction when necessary.

Experian credit report sample screenshot

The Three Major Credit Bureaus

Although each organization within the credit bureau system provides similar information to its subscribers and consumers, three distinct credit bureaus exist within the United States. Experian, Equifax and TransUnion are the national consumer credit bureaus that compile and subsequently provide borrower information. In some instances, one credit bureau may retrieve or display different information than the other two, making a review of all three bureau reports an important step in validating borrower information, for both subscribers and consumers.

To fully understand the default risk of a specific borrower, credit bureau information is the starting point. While each credit bureau operates in a similar manner, various information is captured and disseminated at different times, creating a need for each of the national credit bureaus to exist. Both subscribers and consumers can utilize the information provided by credit bureaus as a safeguard against over indebtedness and fraud when accessed on a regular basis.

By law, every consumer has the right to a copy of his or her credit report each year. However, you have to ask for it. The most common way to request a copy of your credit report from each of the big three reporting agencies is by visiting AnnualCreditReport.com.

Posted on October 11, 2017 by in Credit Monitoring

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