What is a credit bureau?

Definition and Example of a Credit Bureau

How Credit Bureaus Work

Types of Credit Bureaus

Definition and Example of a Credit Bureau

A credit bureau is a company that collects consumer credit information from various sources and sells the aggregated information in the form of a credit report. Many companies rely on credit bureau information to approve your credit applications, determine your pricing, and manage your account. Credit bureaus do not make decisions regarding your application, such as approving or denying a credit card request, but the information they have significantly impacts your life. Understanding how credit bureaus work can help you ensure that your credit information accurately reflects your financial activity.

How Credit Bureaus Work

The concept of a credit bureau dates back to the 19th century when local lenders shared a list of customers and businesses that had failed to repay their loans. Over the years, credit bureaus have evolved and grown alongside the increased use of consumer credit and the development of lending decisions and technology.

In 1970, the Fair Credit Reporting Act (FCRA) was passed to ensure consumers received an accurate and complete credit report. The law requires credit bureaus to investigate consumer disputes, remove outdated information, and inform consumers of the companies that accessed their credit information.

While most consumers are aware of the three major national credit bureaus, there are also specialized credit bureaus that play a role in decision-making for specific industries.

Types of Credit Bureaus

Most people are familiar with the largest credit bureaus, but there are many other types of credit bureaus that collect and provide specialized consumer information. Here is a description of the most common types of credit bureaus:

National Credit Bureaus: When most people mention credit bureaus, they refer to one of the three major national credit bureaus: Equifax, Experian, and TransUnion. These bureaus report your payment history, the amount of credit you are using, collection accounts, public records, and inquiries from companies that requested your information.

Employment Screening: Employment screening companies provide data about your credit history, employment, salary, in addition to your education and professional licenses. These bureaus gather your information when requested by a company, often when you are a final candidate for a job there.

Tenant Screening: Tenant screening companies assist homeowners and property management companies in screening potential tenants. They may gather information regarding identity verification, rental history, eviction history, address history, and criminal and court records.

Check and Bank Screening: Check and bank screening companies provide information to help banks and credit unions decide whether to grant checking accounts to applicants. Information about unpaid checking account balances and suspected fraud is reported.

Personal Property Insurance: Personal property insurance reporting companies gather details about claims on homes, cars, and personal property. This may include types of loss and amounts paid on claims, as well as motor vehicle records and traffic violation records, if any.

Medical: Medical consumer reporting companies gather certain medical information and report it, but this is usually done only if you have consented to release your information. These companies report your medical information to life and health insurance companies to assess your risk and eligibility during the underwriting process.

Low-Income and Poor Categories: Low-income and poor category reporting companies collect information about payday loans, check-cashing services, rental property companies, and other services that target low-income and poor individuals.

Conclusions

Main

Credit bureaus collect and aggregate consumer credit history from lenders, credit card issuers, and other companies for the purpose of selling it to other businesses. There are three major national credit bureaus in the United States – Equifax, Experian, and TransUnion – along with several smaller specialized credit bureaus. The Fair Credit Reporting Act requires credit bureaus to provide accurate credit reports. Some credit bureaus use the credit information they collect to offer additional products to consumers and businesses.

Source: https://www.thebalancemoney.com/what-is-a-credit-bureau-5208834