Definition of a Consumer Reporting Agency
Consumer reporting agencies are most often referred to as credit bureaus. The first consumer reporting agency was established in 1906 and was known as Associated Credit Bureaus Inc. Separate credit bureaus have since branched out from Associated Credit Bureaus Inc. and are responsible for maintaining detailed records of consumer debts, known as "credit reports." Credit reports demonstrate an individual's current and past level of responsibility with debt.
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The Facts
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The three consumer reporting agencies are Equifax, Experian and TransUnion. Each assigns a score to individuals based on the information contained within their credit reports. This score ranges from 300 to 850 and helps lenders make educated decisions about whether or not to lend or extend credit). The exact formula for scoring has never been released, and each credit bureau may assign an individual a different score. All three credit bureaus are governed by the laws set forth in the Fair Credit Reporting Act.
Function
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In addition to merely maintaining consumer records, consumer reporting agencies update those records with information sent to them by creditors. They then distribute credit reports to lenders to assist them in making educated lending decisions. Lenders must pay to obtain a credit report on an individual. The credit bureaus allow each individual one free copy of his credit report each year. Credit bureaus also assist creditors in targeted marketing practices by selling consumer credit scores. Creditors then focus the marketing of credit toward the consumers whose credit scores indicate that they qualify for the service.
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Benefits
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The availability of detailed debt management histories from the credit bureaus allows lenders to more accurately assess the risks involved in lending to an individual. This benefits banks by providing a guide on which to base a customer's interest rates. Consumers benefit as well. Because risky lending is minimized by the availability of credit reports, banks have more money available to lend. Individuals with a high credit score have proof of their responsible financial behavior and thus are rewarded with low interest rates.
Considerations
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Due to the large volume of records managed by the credit bureaus, mistakes are inevitable. A consumer reporting agency is unable to verify each of the millions of regular reports it receives from creditors. Because of this, the FCRA allows consumers to dispute any information contained within their credit reports that they deem to be inaccurate or do not recognize. A credit bureau has 30 days to investigate the disputed information and determine its accuracy. If the investigation results in a change in the consumer's credit report, the credit bureau must provide the consumer with an updated copy of the report. Credit bureaus must respond to every dispute they receive unless an identical dispute has been resolved.
Misconceptions
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When a consumer reporting agency refuses to remove inaccurate information from credit reports, many consumers mistakenly believe that they are entitled to file a lawsuit against the credit bureau for violating the laws set forth in the FCRA. This belief is often propagated by credit repair organizations that have failed to have negative or inaccurate notations removed from an individual's credit report. The FCRA sets the guidelines for the behavior of the agencies, but it also affords them certain protections. One such protection is that a lawsuit for incorrect reporting may only be filed by a state attorney general. Some consumers have gotten around this stipulation, however, by filing lawsuits based on grounds other than FCRA violations.
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