What Is a Credit Bureau?
Let me explain what a credit bureau is. In the U.S., it's also called a credit reporting agency, and it's basically an organization that gathers and analyzes your personal credit details, then sells that info to lenders for a fee so they can decide if they want to give you credit or a loan.
Key Takeaways
You need to know that a credit bureau collects and researches your credit information and sells it to creditors to help them decide on granting loans. The big three in the U.S. are Experian, Equifax, and TransUnion, but there are others too. These bureaus assign credit scores based on your credit history. Those scores are key in predicting if you'll get credit and on what terms. Remember, credit bureaus don't decide if you get credit—they just compile and provide the risk info to lenders.
How Credit Bureaus Work
Credit bureaus team up with all sorts of lenders and credit issuers to assist in their loan decisions. Their main job is to make sure creditors get the data they need for lending. Typical clients include banks, mortgage companies, credit card issuers, and other personal loan providers.
Credit bureaus aren't the ones approving or denying credit; they just gather and summarize info on your credit risk and pass it to lenders. You as a consumer can also access this service to get details on your own credit history.
Credit Scores
Credit bureaus get their data from sources like creditors, debtors, collection agencies, vendors, and public records offices—think court records, which are open to the public. Most focus on credit accounts, but some include broader info like payment history for cellphones, utilities, rent, and more. They use various methods to calculate your credit score from this history.
The most common scores are FICO scores, developed by Fair Isaac Corporation in 1989. There are 19 widely used FICO versions, each tailored differently for various clients, so lenders pick the one that fits their needs.
Once they have the score, credit bureaus bundle it with the collected info into a full credit report. This helps lenders decide on approvals and set interest rates. If you have a higher score, you'll probably get a lower rate on your loan.
About 90% of U.S. lenders use a FICO score to determine if they'll offer credit and on what terms.
Major Credit Bureaus
There are several credit bureaus in the U.S., but the main ones are Equifax, Experian, and TransUnion. Besides FICO, these three created their own score called VantageScore.
Both FICO and VantageScore range from 300 to 850, though VantageScore started with 501 to 990, and some FICO versions use 250 to 900 for specific industries. They differ in how they weight categories, so scores aren't usually the same. For instance, a good FICO is 670 to 719, while a good VantageScore is 661 to 780.
Another key difference is sourcing: VantageScore makes one score using data from all three bureaus, while FICO uses data from just one bureau, meaning you could have three different FICO scores, one per bureau.
Important Note on Access
You are entitled to one free credit report every 12 months from each bureau, but you might have to pay to see your actual credit score.
Credit Bureau Regulation
Even though credit bureaus don't make lending calls, they're powerful players in finance, and their reports can seriously affect your financial life. The Fair Credit Reporting Act (FCRA) from 1970 regulates them, focusing on how they handle and interpret consumer data. It's mainly to protect you from careless or fraudulent info in your reports.
In 2003, the Fair and Accurate Credit Transactions Act (FACTA) updated the FCRA, giving you the right to one free credit report every 12 months from the bureaus. It also lets you buy your credit score with details on how it was calculated.
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