Credit
bureaus are merely clearinghouses for credit history information.
When a consumer applies for credit (or in some cases -
employment or insurance) the potential lender requests a copy
of that consumer’s credit report for certain credit bureaus.
The credit bureaus then assemble the information from public
records and from reports sent from past lenders. Then the credit
bureaus sell this information in the form of a credit report
to the potential lender who then decides whether to grant the
loan or not, based on the credit history of that consumer.
There
are, in fact, over 1000 local and regional credit bureaus
throughout the United States; however, most are either owned
or under contract to the nation’s three major credit
reporting agencies. These three credit reporting agencies,
TransUnion, Equifax, and Experian, maintain centralized databases
that contain the credit records of more than 170 million Americans
and which get the appropriate information to the credit bureaus.
In total, over half a billion credit reports are generated
each year.
Credit
bureaus don’t rate your credit but some do offer credit
scoring services.
However,
it’s strictly up to the lender as to how the information
received from the credit bureaus is interpreted. This means
that credit bureaus do not approve or reject consumer applications
for credit; the credit bureaus merely give potential lenders
the information needed to help them make that decision.
Theoretically,
all three reports from the credit reporting agencies should
be virtually identical but in fact, there are often major
differences. One of the reasons for the discrepancies is that
creditors and other information sources may only send a report
to one of the credit reporting agencies. Another reason is
that there is often incorrect or outdated information contained
in various reports, which leads to reports received from certain
credit bureaus being substantially different from others.
For example, a credit reporting agency may mismatch the name
of one consumer with another and thus insert a report into
the wrong credit file. Names, social security numbers, addresses,
employers, and other personal information can be easily confused,
leading to errors in credit reports.
That’s
why it’s important to periodically check your credit
reports (many recommend that this be done every 90 days).
It’s easy to find credit bureaus willing to work with
you. If you notice any major variations, you should take a
closer look for errors. It’s your right to contest any
errors that you believe were made. Credit bureaus are around
to help you.
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