#3 Major Credit Reporting Agencies

A credit bureau is a company that acquires financial information from major lenders and various other sources and then uses that data to generate credit reports on individual consumers. These credit reports are used by banks and other consumer lenders like large department stores to assess the quality of a person s credit worthiness .

Each borrower presents a unique set of risks to a bank, credit card company or other type of lender that is asked to extend credit. Knowing a person’s borrowing habits, credit history and estimated ability to pay bills helps lenders decide whether to lend, how much to lend and what interest rate to charge a customer when loan terms are negotiated or set.

The major credit information companies are Equifax, Experian and TransUnion. These are for-profit companies and are not affiliated with the U.S. government or with any educational entity. They provide a service to banks and lenders that pay them – and to individuals who pay them, when needed, for copies of their credit reports.

Every time you pay your credit card bill. your mortgage or your insurance premium, for example, that information is forwarded by your creditor to the three major credit bureaus and as other specialty bureaus that compile similar data.

If you miss a monthly payment, that information is also passed along to the companies. This is how credit bureaus compile a history of your financial transactions and keep track of your short-term and long-term success or failure to meet your financial obligations in a timely manner.

Information on your credit report includes:

• Personal identification: Social Security number, date of birth, address(es) and recent employment history.
• Public records: This includes tax liens, judgments, bankruptcies (up to 10 years), child support payments, etc.
• Delinquencies: Whether any of your past or present accounts have been delinquent, charged off or sent to collection agencies for payment (up to seven years).
• Credit accounts. Information on all of them, both open and closed, including the type of account, how much you owe and to whom, your monthly payments, your payment history and your credit limits.
• Inquiries: A list of the companies that have made asked for your report, either soft inquires for promotional purposes or hard ones – such as a request from you for credit.

Credit Bureaus and Credit Scores

Credit bureaus also calculate your credit score . A credit score is the result of a mathematical computation based upon the contents of your credit report. The score is an effort to quantify your projected reliability in paying back car loans, credit card balances, mortgages and other lines of credit.

The most widely used credit score is the FICO score, created by the Fair Isaac Corporation in the 1950s. The FICO score is a three-digit number that ranges from 300 to 850. The higher the number, the better your credit rating and the better terms you can expect when negotiating credit or a loan.

Another credit score is the VantageScore. It has been in use since 2006 and ranges from 501 to 990. Like the FICO, the VantageScore rewards better credit risks with higher scores.

Both the FICO and VantageScore assessments are made up of several components from your credit history, including:

• On-time payment history.
• The amount and type of your debt (the proportion of what you still owe on the original loan).
• The length of time you have been using and repaying credit
• The variety of your accounts (mortgage, student loans, revolving credit)
• The number and types of accounts you have opened recently; and
• The way in which you utilize your credit limits.

As your credit history changes over time, your credit score will reflect those changes.

Getting Your Credit Reports from a Credit Bureau

Just as it is important for potential lenders to review your credit report before deciding to loan you money or grant you a line of credit, it s important for you to stay on top of your own credit reports and credit scores. You will want to correct any mistakes or errors and verify that the report is an accurate representation of your credit history.

The Fair and Accurate Credit Transaction Act (FACTA) entitles every American to one free credit report – called a file disclosure – from each of the three major credit bureaus, every 12 months.

To obtain a report, you can visit www.annualcreditreport.com. which will direct you to the three credit bureaus. Your report is free.

Beware of look-alike sites that offer you your report in return for purchasing another product or service. If you wish to know your credit score, you need to contact one of the big three directly and pay a small fee.

Credit bureaus can release your credit report to anyone who has a valid business reason to request it. That includes banks, car companies, mortgage lenders, department stores and many other types of vendors, landlords, courts, prospective employers (with your permission), insurance agents, the Internal Revenue Service (IRS), professional licensing authorities and collection agencies, among others.

This is why it s important that you check your credit reports and credit scores periodically. Any incorrect entry can have negative, even severe, consequences.

The federal Fair Credit Reporting Act (FCRA) gives you the right to dispute any misinformation on your report to the credit bureau, which must investigate any questionable items within 30 days and then remove any unverified or incorrect entries. If any information is changed or removed, the credit bureau must issue you a free copy of the revised report.