You may not think about them often, but credit bureaus have a major impact on your financial life. These publicly traded, for-profit corporations collect payment history information from lenders and creditors you have accounts with, as well as from public records like bankruptcies and items in collections. They then compile the data into your credit report and a credit score that lenders, insurance companies, employers and others can access when making decisions about you.
There are more than 400 consumer reporting agencies in the United States, but the three you’ve probably heard of most — Equifax, Experian and TransUnion — are the largest. CRAs, as they’re known in the industry, might not make for interesting dinner table conversation, but they have huge influence over your ability to get loans, credit cards and mortgages, as well as how much you pay for those products.
CRAs have several responsibilities and duties that are governed by federal laws, including the Fair Credit Reporting Act (FCRA) and the Consumer Financial Protection Act of 1999. These laws set out consumer protections, directions and limits on how CRAs use and disclose your data. They also protect against identity theft and other fraud.
Lenders review your credit report and your credit score when determining whether or not to approve you for a loan, and the terms of that loan, such as the interest rate and other fees. Lenders use the scores and information in your report to assess your creditworthiness and determine how likely you are to repay a debt, so it’s important that the information is accurate.
Unlike banks and other financial institutions, CRAs do not make credit decisions for consumers. Rather, the decisions about which loans and credit cards you receive are made by lenders themselves when they are assessing your application. But when a lender makes that decision, they will look at your credit report and credit score to see how responsible you have been with your payments in the past.
To help lenders identify the best candidates for credit, CRAs use a combination of factors in your report, such as your payment history, number of open and closed accounts, age of accounts, whether you have had any delinquencies, the types of credit you have used and the amount of your debt. CRAs then apply an algorithm to calculate your credit score, which is a snapshot of your current credit risk.
You have rights to your credit report and a right to dispute inaccurate information with the CRA that maintains it, but you don’t have the legal right to stop the CRA from gathering or sharing your data with third parties. You do have the right to a free credit freeze, however, which limits who can access your report and helps to protect you from identity theft. The Disposal Rule of the FCRA governs what happens to your data when it is no longer needed for a specific purpose. credit report agency