Credit reporting agencies are an integral part of the credit scoring process. Whether you’re working on repairing your credit, building it from scratch, or maintaining an excellent score, it’s important to understand what these agencies do and how they work. After learning the basics, you can use this knowledge to your advantage when trying to get your credit score as high as possible. And since loan approvals, credit card offers, and interest rates all hinge on the quality of your credit, it’s vital to know the ins and outs of the entire system.
What is a credit reporting agency?
A credit reporting agency (also known as a credit bureau) collects and records the credit information of both individual consumers and businesses. In the United States, the industry is dominated by the largest credit reporting agencies: Equifax, Experian, and TransUnion. They are three separate companies in competition with each other and consequently don’t share information back and forth, so it’s not uncommon to see different information from each one.
The most common types of credit information collected by credit reporting agencies include loan balances, credit card balances, payment history, account statuses, and public information. As the information is collected, the credit reporting agency can then sell your credit report to banks, credit card companies, and other lenders to aid them in creating a customized financing offer based on your credit profile. It provides these financial institutions with a way to better judge your creditworthiness based on your past choices and current debt load. Insurance companies also decide what your rates will be and employers can decide whether to hire you or not based on the information on your credit report.
However, it’s important to note that despite their seemingly official role, all credit reporting agencies are for-profit companies and are in no way affiliated with the federal government. Their primary purpose is to maximize profits for their shareholders just like any other publicly traded company. That’s why it’s so important to monitor your own credit report to ensure the accuracy of the information there. Making sure everything is complete and correct is in your best interest, but not necessarily theirs.
How do credit reporting agencies work?
Every month, banks and other creditors send millions of records to the credit reporting agencies updating them about their borrowers. These reports include whether or not the borrowers paid the money they owed that month, if they were late making a payment, or if they defaulted on their balance. The credit reporting agencies accumulate all of the data given to them by the banks on their borrowers and list it on each individual’s credit report. While most information is updated monthly, the credit reporting agencies usually have a processing time of several weeks before everything is completely up-to-date.
No creditor or business is required to send consumer credit information to the credit reporting agencies. Most of the large lenders and credit card companies do report regularly, but it’s less likely that smaller financial institutions take this extra step. Or, they might only report to one or two agencies. Some companies, on the other hand, may not report your positive payments each month, but will let the credit reporting agencies know if you’ve missed a payment. If you’re trying to get some type of financing while rebuilding your credit, ask your lender or creditor whether or not they report to all three agencies to ensure you’ll improve all three credit scores.
What do credit reporting agencies report on?
Credit reporting agencies collect data from participating lenders and creditors, then report the information back to financial institutions on the overall credit history of their loan or credit card applicants. Too many negative items on your credit report can result in a low credit score. You could then either be denied financing altogether or be subject to higher interest rates and lower credit lines. This can make borrowing money extremely expensive. You can avoid going through this situation by understanding everything that credit reporting agencies include on your credit report.
One of the most common negative items that can appear on your credit report is late payments. They can come from your credit cards and loans, like your a mortgage, car loan, student loan, or personal loan. Even if you don’t borrow money, other companies can also report late payments, such as cell phone carriers and utility companies. That’s why it’s so important to make your payments on time for all of your bills each month. A late payment can be reported at the 30-day mark and is re-listed in 30-day increments after that. Your credit score will continue to drop as time goes on. However, many lenders and credit card companies also report on-time payments, which go a long way towards building a strong credit score.
In addition to your payment history, credit reporting agencies also import public information from the court systems. This includes bankruptcies, judgments, tax liens, charge-offs, repossessions, credit counseling, and collections. Most of these items stay on your report for seven to ten years. It’s difficult to prevent this information from appearing on your credit report, but it’s not impossible to have it removed. A knowledgeable credit repair company can help you create a strategic plan to get negative items off your report to improve your credit score.
Can credit reporting agencies make mistakes?
Credit reporting agencies deal with millions of data records every month and they are very prone to making mistakes. According to a report by the FTC, one in five Americans has a mistake on their credit report. Errors on your credit report can be costly, so it’s very important to make sure that you see what’s being reported about you on your credit report often, especially before you apply for a loan of any kind.
Due to the passing of the Fair Credit Reporting Act (FCRA), you can request a free copy of your credit report from each credit reporting agency once a year in order to see if there are any mistakes listed. Go to AnnualCreditReport.com to request your reports online or get a form to mail in your request. If you see any mistakes on your credit report, you can file a dispute in order to get the incorrect items removed. Also, know your rights when it comes to credit reporting so you aren’t unfairly penalized the next time you need financing.
Who oversees the credit reporting agencies?
Credit reporting agencies aren’t public entities, but that doesn’t mean there’s no government oversight involved. Ever since 2012, the Consumer Financial Protection Bureau has been tasked with supervising the largest agencies at a federal level. The CFPB conducts exams to monitor how the agencies screen for accuracy, how they investigate consumer complaints, and other procedures. If you have a complaint with one of the credit reporting agencies, you can contact the CFPB, the FTC, and your state attorney general. It may seem like a lot of steps but it’s best to cover your bases and get as many regulators involved as possible if there’s any potential wrongdoing.
In addition to ongoing government oversight, the credit reporting agencies must also comply with the Fair Credit Reporting Act (FCRA). This federal law helps to protect consumers by requiring the agencies to investigate all disputes within 30 days. It also allows you to opt out of being included on marketing lists sold by the credit reporting agencies. You can do so by calling 1-888-5-OPT OUT or visiting www.optoutprescreen.com.
Getting help with filing a dispute
While the FCRA has certainly made the dispute process better regulated, it can still take a lot of time and effort to get a negative item removed from your report. That’s because oftentimes, you not only need to work with the credit reporting agencies, but you also have to get agreement from the actual creditor. If you are too busy to spend your time writing dozens of letters to credit reporting agencies and creditors, there are legitimate credit repair services that can help you out. Credit repair services help consumers contact credit reporting agencies and get negative items removed from their credit report. They can also help you deal with your creditors and collection agencies. And since they have teams of lawyers with specific expertise and experience in this field, your chances of success are a lot higher.
How can I contact the credit reporting agencies?
The following page their contact information here: