Credit Reporting Agencies

The credit reporting agencies keep track of payments you make to creditors.

Whenever a consumer requests a copy of his credit report, that financial record is provided by one of the three U.S. credit reporting agencies: Experian, Equifax or TransUnion. These agencies are responsible for maintaining every U.S. resident's credit records and distributing them to consumers, lenders and other businesses.

Facts

When an individual takes on new debt, her creditor may report the status of her account to the credit reporting agencies. A creditor must hold membership in each agency's reporting program in order to make reports. The way consumers pay their debts and manage their accounts impacts their credit scores. The credit reporting agencies also keep up with public records about consumers that reflect financial situations, such as bankruptcies and credit card judgments.

Function

By compiling an individual's payment histories, public records and accounts into one report, the credit reporting agencies can help lenders identify high risk applicants who are less likely to make regular payments to their creditors. A lender may then charge higher interest rates on a loan or line of credit. The credit reporting agencies also provide this information to consumers to help them determine their likelihood of being approved for a loan or line or credit before formally applying.

History

In the 1950's and 1960's credit reporting agencies were often regionally based and maintained mostly derogatory, rather than comprehensive, financial information. In addition, these companies maintained public records, such as arrest records and marriage records, that the current credit reporting agencies do not. In 1977, Congress passed the Fair Credit Reporting Act (FCRA), which regulated the financial reporting process and stipulated the exact responsibilities of credit reporting agencies.

Misconceptions

Many individuals mistakenly believe that credit reporting agencies are government companies. Although the federal government is responsible for regulating the credit reporting agencies, these companies are private institutions. Experian, Equifax and TransUnion all charge businesses for the privilege of reviewing consumer credit records. These agencies also sell consumer information lists to marketers. Consumers, however, have the right to "opt out" of inclusion in these marketing lists.

Considerations

The FCRA holds the credit reporting agencies liable for erroneous information that may appear on an individual's credit report. Should a consumer file a formal dispute with any of the three bureaus, the law requires the credit reporting agency to investigate the dispute and rectify any errors within the individual's credit history within 30 days. Because each credit reporting agency may maintain different financial information on an individual, consumers have the right to review, free of charge, all three of their credit reports for errors once each year.

References

• TrueCredit: Credit Report Guide
• Federal Trade Commission: Need Credit or Insurance? Your Credit Score Helps Determine What You'll Pay
• Federal Reserve Bank of Philadelphia: An Overview and History of Credit Reporting
• Credit Attorney P.C.: About Credit Bureaus
• Federal Trade Commission: The Fair Credit Reporting Act

Resources

• U.S. Department of the Treasury: Guide to the Federal Credit Bureau Program
• Equifax: How Credit Reporting Works
• Americans for Fairness in Lending: Credit Reporting and Scoring