Credit bureaus control the flow of information about your finances

The majority of people in the United States who use credit to make purchases at some time in their lives are probably aware that there are companies that monitor their financial transactions. They probably don’t give it much thought, though, as the only time anyone really tends to worry about his or her credit report is when they aren’t approved for a loan that they want. That’s unfortunate, as it makes good financial sense to check your credit report regularly in order to make sure that there aren’t any errors on it that could cost you money.

Beyond the basics, most people don’t know much of anything at all about credit bureaus or how they work. For that reason, a primer is in order. 

Credit bureaus are for-profit clearinghouses of financial information for consumers and businesses. It is their job to keep track of financial transactions and to report to lenders and creditors the status of the financial health of consumers. They do this upon request, and they do it for a fee. If you apply for a credit card, the company that issues the card will first check with a credit bureau to see if you have a history of paying your bills on time and in full. In exchange for that, a credit bureau receives a fee.

Of the people that at least know that credit bureaus exist, most probably think that there are only three of them. That isn’t true; there are actually dozens, or more, such companies. Three companies do control the vast majority of the business, however. Those three companies are Experian, Trans Union, and Equifax. Virtually all major lenders do business with one or more of those companies exclusively. 

These companies compile credit reports for individuals and businesses as well as create credit scores for individuals. Many people think that there is one, universal, credit score for an individual; that’s not entirely true. While the three major bureaus have recently created a unified scoring system, called VantageScore, they each also use their own scoring system. For that reason, an inquiry to one bureau might yield one score, while an inquiry to another bureau might produce a different figure.

In addition to different scoring models, the agencies also have different information on file. There is no requirement that a lender report to more than one company, so any particular one may have different information from any other one. That is why it’s a good idea to check your credit report from all three major reporting agencies when you decide to check out your financial health.

Consumers should also be aware that there is no “official” credit agency. These matters are handled exclusively by private industry and are not created, sanctioned, or supported by the Federal government. 

It pays to be aware of how your finances are handled and who handles them. After all, it’s your personal information, so it’s a good idea to know who is in charge of it.

Copyright © 2005-2007 by Retro Marketing. All rights reserved.