What Is a Credit Bureau?

A credit bureau, also known as a credit reporting agency in the United States, is a company that collects and analyses individual credit information and sells it to creditors for a charge so that they can make credit or loan decisions.

How Credit Bureaus Work

Credit bureaus work with a variety of lenders and credit issuers to assist them in making loan decisions. Their main goal is to make sure creditors have all of the information they need to make lending choices. Banks, mortgage lenders, credit card issuers, and other personal financial lending organizations are typical credit bureau clients.

Credit bureaus do not make decisions about whether or not a person should be granted credit; instead, they collect and summarize data on a person’s credit score and provide it to lending institutions. Customers of credit agencies can also be consumers, who receive the same service—information about their credit history.

Credit Scores

Credit bureaus get their data from data suppliers such as creditors, debtors, debt collection agencies, vendors, and public records organizations (court records, for example, are publicly available). The majority of credit bureaus focus on credit accounts; however, some have access to more complete data, such as payment history on cell phone bills, electricity bills, rent, and other payments. Based on this credit history, credit bureaus employ a variety of algorithms to compute a person’s credit score.

The Fair Isaac Corporation invented FICO scores in 1989, and they are the most widely used credit ratings in the United States.  There are 19 regularly used FICO scores, each of which is calculated differently with different types of clients in mind, allowing credit issuers to select the credit score that best suits their inquiry.

Credit bureaus then combine the credit score with the other information they’ve gathered to create a comprehensive credit report, which gives credit issuers information to assist them decide whether to approve credit and what interest rates to charge borrowers. A person with a higher credit score will almost certainly be offered a reduced interest rate on a loan.

Major Credit Bureaus

Although there are other credit bureaus operating in the United States, Equifax, Experian, and Trans Union are the three most important. These three bureaus have integrated their credit ratings, the Vantage Score, in addition to using FICO scores.

Although the Vantage Score originally used a 501 to 990 range, and some industry-specific FICO scores are assessed on a 250 to 900 scale, both scores are calculated on a scale of 300 to 850. FICO and Vantage Score, on the other hand, measure the relevance of various areas differently, thus their ratings are generally dissimilar. A good FICO score, for example, falls between 670 and 719, while a good Vantage Score falls between 661 to 780 range.

Another significant variation between the scores is the sources. Based on information from all three bureaus, Vantage Scores generate a single score that may be used with a credit report from each of them. For its score, FICO, on the other hand, only uses data from one bureau. So, for instance, you could have three separate FICO scores, one for each of the three credit bureaus.

Credit Bureau Regulation

Despite the fact that credit bureaus do not make lending decisions, they are extremely powerful financial institutions, and the information included in their reports can have a significant impact on a person’s financial destiny. Credit bureaus and their use and interpretation of customer data are governed by the Fair Credit Reporting Act (FCRA), which was enacted in 1970. Its primary purpose is to safeguard consumers from inaccurate or intentionally false information in their credit reports.

The Fair and Accurate Credit Transactions Act (FACTA) of 2003 revised the Fair Credit Reporting Act, giving customers the right to receive one free credit report from credit agencies every 12 months. It also gave customers the option of purchasing a credit score, along with details on how it was calculated.

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