What is a Credit Bureau and How Do They Operate?

What is a Credit Bureau

Credit bureaus, or consumer reporting agencies, play an important role in the financial lives of millions of people around the world. They provide information about a person’s creditworthiness to merchants, mortgage lenders, and credit card issuers who review their reports when making lending decisions. Credit bureaus also sell their reports to other companies, such as insurance agencies, employers, and landlords. Credit bureaus are privately owned commercial enterprises, while credit registries, the other main type of credit reporting institution, often operate as public entities managed by bank supervisors or central banks.

A credit report compiled by a credit bureau contains data about a person’s debt, including the amount he or she currently owes on various credit accounts and whether those payments are current. Credit bureaus may also include information about collections, liens, or bankruptcies on the report, as well as hard inquiries, which are made when potential lenders check a person’s credit. A credit score, which is a number derived from a Credit Repair Doral, is created based on the information in the report and used by lenders to assess a potential borrower’s risk.

The three major credit bureaus in the United States are Equifax, Experian, and TransUnion. Each credit bureau compiles a unique set of data about consumers and aggregates it into a report that is shared with lenders. Often, lenders consider several reports from each of the major credit bureaus when making lending decisions. In the case of a mortgage, for example, many lenders will pull one or more of the three credit reports from each of the credit bureaus to ensure that all of the information is accurate and consistent.

What is a Credit Bureau and How Do They Operate?

Each of the major credit bureaus also creates a proprietary credit score that is derived from their own credit reports and used to evaluate a person’s creditworthiness. These scores are commonly referred to as FICO and VantageScore, respectively. These scores are typically derived using mathematical algorithms that look at all of the data in a credit report and then calculate a rating based on the likelihood that a person will default on a loan or pay his or her debts on time.

As private commercial businesses, credit bureaus are better suited to the specific needs of creditors than are credit registries, which tend to be more oriented towards collecting system-wide data for macroprudential and other policy purposes. Generally speaking, credit bureaus strive to collect very detailed information about individual clients in order to be able to make highly personalized lending decisions.

Aside from the big three, smaller credit bureaus can be found throughout the world and may operate in a variety of ways. Some are cooperatives, organized for the exchange of information between merchants; others are private enterprise ventures funded by a combination of membership fees and service charges. The International Finance Corporation has supported the development of credit reporting systems around the world for a decade. Its 2006 Credit Bureau Knowledge Guide provides an overview of experiences in building credit reporting institutions and offers best practices in developing credit reporting services.

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