|
The first step to understanding
credit reporting is to understand how credit information is gathered
from consumers. Where does the information come from? Who has access
to it? What is a credit bureau and how do the various bureaus differ?
In brief, credit bureaus
are businesses that maintain files on basically every consumer -
18 years and over - who has ever had some type of credit obligation,
such as a loan or a credit card. Credit files contain a myriad of
information, including the amount of credit debt a consumer has
accumulated, the type of debt and payment history. When requested
by a potential lender or creditor, this information is collected
and packaged into what is known as a credit report. Lenders and
creditors use the information from the credit report to supplement
any applicant information they have gathered, in order to make an
informed decision about a consumer’s creditworthiness.
The first credit reporting
“bureaus” in all likelihood consisted of cooperatives of community retailers
formed to share information about consumers. These banks, stores or finance
companies tracked and shared the buying and repayment habits of their customers,
with the focus primarily on derogatory information. By the mid-1950’s, independent,
geographically centered bureaus were established. However, information exchange
was limited by the inability to effectively transmit large amounts of data.
The advent of computers revolutionized the credit reporting industry by making
it possible to transmit information over a greater geographic distance. |
|
Consolidation is another
factor that played an important role in shaping today’s credit reporting
industry. As larger companies absorbed or partnered with smaller credit bureaus,
they were able to offer even greater national coverage.
Today there
are three national credit bureaus that dominate the industry: Equifax®,
Experian®, and TransUnion. Each bureau owns or is
affiliated with hundreds of previously independent local credit
bureaus. However, there are still many smaller regional credit bureaus
that have no relationship with the three major bureaus. The credit
reporting industry currently generates between $3 and $4 billion
in annual sales. The credit bureaus estimate that approximately
1.3 billion credit reports are run each year, and each bureau, on
average, maintains approximately 225 million consumer credit files.
Credit bureaus collect information
on consumers from lenders such as banks, credit card companies,
department stores and even collection agencies. The bureaus also
draw information from public records to provide additional details
regarding bankruptcies, judgments or liens. Any company that makes
lending decisions, or manages financial accounts, can voluntarily
report back to the bureaus, and the bureaus are always soliciting
information from these types of companies. |
