What You Should Know about Credit Bureaus
Your credit report and scores are important indicators of your overall financial health. But what do you know about the organizations that compile credit information, generate reports and calculate credit scores? If you’re not sure how credit bureaus operate and what they do, you’re not alone.
A 2014 study by management consulting firm Auriemma Consulting Group showed that only half of consumers are generally knowledgeable about credit bureaus, although people with children and/or more capital tended to be more familiar.
Who are these people?
The Free Credit Reporting Act (FCRA) requires the three national credit reporting companies – Experian, Equifax® and TransUnion® – to provide you with a free copy of your credit report once a year, upon request. You can obtain your free credit report by visiting annualcreditreport.com.
A number of other companies also compile consumer credit information, and the Consumer Financial Protection Bureau has put together a list of consumer reporting agencies that you can review online. Different types of creditors – landlords, utility providers, lenders, etc. – use different reporting agencies to gather information about consumers with whom they do business. If you’ve been denied credit, the law allows you to request a free copy of the credit report the creditor used when considering your application.
What the agencies report
Credit reporting agencies get information from a number of sources, including past and current credit accounts (such as loans and credit cards), public records and collection actions. While each report varies depending on the reporting agency, a credit report will generally include:
- Basic information about who you are, like your name, current address, birth date and Social Security number
- Current and past accounts, including the type of account, date you opened it, credit limit or loan amount, current balance and payment history for each account
- A list of everyone who’s reviewed your credit report for the last two years
- Any financial actions taken against you, such as collections, bankruptcy, foreclosure, liens, judgments or wage garnishment
If you disagree with something that appears on your credit report, contact the reporting company immediately in writing. For information on disputing credit report information, visit the Federal Trade Commission website.
How it adds up to a credit score
A credit score is a number that is calculated to rate your likely creditworthiness, based on the information contained in your credit report. Creditors often consider your credit score when you apply to open a new account or seek additional credit from them. Different credit reporting organizations use proprietary formulas to calculate your credit scores, which is why you can have many different scores depending on the scoring model used. Generally, however, bureaus consider these common credit factors when processing a credit score calculation:
- Payment history: Do you always pay on time, or have you made late payments in the past?
- Credit utilization ratio: How much debt do you have compared to how much credit you have available? Are your credit limits maxed out, or do you have ample credit available?
- Age of accounts: How long have you been using credit? Do you have older accounts that have been in good standing for a long time, or many newer accounts?
- Number of accounts: How many active credit accounts do you have? Do you have a lot of debt, or the potential to run up a lot of debt?
- Negative marks: Do you have any collections, liens, judgments or other legal actions against you?
- Multiple inquiries: How often in recent months have you given a creditor permission to review your credit report?
Federal law does not entitle consumers to free access to their credit scores; you’ll need to pay a fee in order to obtain yours.
This article is provided for general guidance and information. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.
