What Are Credit Reporting Agencies Doing And What Does It Mean For Your Money?

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The United States has three major credit bureaus: Equifax, Experian, and TransUnion.

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“These are for-profit companies that are not affiliated with the government and collect data on your credit behavior, as well as the credit behaviors of over 200 million other Americans,” said John Davis, Founder of ScoreSense . “The information they collect is used to produce credit reports, which they sell to businesses.”

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But credit bureaus don’t act alone. “The Federal Trade Commission (FTC) and the Office of the Comptroller of the Currency (OCC) oversee credit bureaus. The Fair Credit Reporting Act (FCRA), which is federal legislation, must be followed by the bureaus, ”Davis said.

What do credit bureaus do

When describing what credit bureaus do, it is fair to say that they serve as financial archivists.

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“Each of the three major news agencies – Equifax, Experian, TransUnion – keep track of individuals’ debt and how they pay those debts,” said Freddie Huynh, vice president of data optimization at Freedom Debt Relief and former Senior Data Scientist. at FICO.

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“Each agency reports its own credit rating, based on current information it has gathered on individual credit use. This can include the story, [the] current amount of credit available, current amount of credit used, and on-time (and overdue) payment history. It really comes down to assessing whether someone can pay and pays on time, and whether there are any indications of financial overrun. “

Why credit bureaus exist

The oldest credit reporting agency, Equifax, was established in 1899 to help lenders and businesses identify creditworthy customers – a rationale that still holds true today for the three credit bureaus of the credit.

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“When you apply for credit, your lender requests your credit report from at least one of the three major credit bureaus,” said Beverly Harzog, consumer credit analyst and credit card expert at US News. & World Report. “Your lender will also ask for a credit score. Your credit score is calculated based on the information in your credit report.

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“Your credit reports and your credit scores are the most important factors when banks, creditors and other lenders determine whether they should approve a loan, mortgage or other credit facilities,” Davis said. “The reports provided by the bureaus help banks and businesses limit their risks. “

Why credit bureaus are considered necessary

Credit bureaus are needed to act as disinterested third parties that allow thousands of lenders and county courts to share data on consumer borrowing behavior, said Kevin Haney, president of Growing Family Benefits and former Experian executive. “Credit bureaus receive puzzle pieces of consumer borrowing behavior from thousands of lenders and county courts and put the pieces together into a complete picture of an individual’s story,” did he declare.

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In short, credit bureaus amass a ton of information on consumer credit behavior. Next, each agency should sort the information in a way that is useful and logical for lenders, businesses, and individuals who request your credit report and score to assess your risk or creditworthiness for various reasons, such as a loan or credit application, leasing. a car, rent an apartment or request utilities.

This article is part of GOBankingRates’ “Economy Explained” series to help readers navigate the complexities of our financial system.

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Last updated: February 18, 2021

This article originally appeared on GOBankingRates.com: What Are Credit Reporting Agencies Doing – And What Does It Mean For Your Money?


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