If you have never applied for credit, your first application for credit will probably get things started. The creditor processing your application will give identifying information about you (name, address, and Social Security number) to the credit bureau and ask for your credit file. If you don’t have any credit, the credit bureau will tell the lender that it cannot find a file on you and will use the information the creditor supplied to start your first credit file.
A lot of people have the impression that there’s actually a credit report sitting in some credit bureau with all your information in it. In fact, however, your credit report doesn’t actually exist until someone asks for it. When someone requests your credit report, the computer searches and finds all the information in its databases about you and puts together the report. Experian describes the process of putting together a credit report as similar to making beef Stroganoff: You may have all the ingredients in your kitchen, but the dish doesn’t exist until you put them together.
Credit bureaus get information about your credit accounts from lenders. Some lenders will send information about their accounts to the credit bureaus on a monthly basis, others on a quarterly basis. They may also report information infrequently; for instance, many gasoline card issuers only report information about accounts that are ninety days or more behind on payments. Lenders often provide information about accounts to the credit bureaus on magnetic tape, which makes it easier to transfer information from the lender’s files to the credit bureaus. It’s also supposed to help cut down on mistakes.
Credit bureaus add the information they get from lenders to their credit reports, then turn around and sell credit reports back to lenders for anywhere from less than $1 in high volume to more than $10 per report for less frequent customers.
As I pointed out earlier, credit files may contain outdated or wrong information. Part of the problem is the sheer volume of information that is exchanged. Creditors report billions of pieces of information to credit bureaus each year. With that much data going back and forth, mistakes are bound to happen.
The only way to be sure that credit file information is correct is to look at your report and see if there are any mistakes. Unless you have been turned down for credit recently, however, you’ll probably have to buy a copy of your report. Most credit bureaus charge an individual $9 per copy.
A problem with credit files is that wrong information can show up on files at different bureaus. Many lenders supply information to all three of the major credit agencies. That means that if a creditor reports erroneous information about your payment history, it will probably show up in the files of different credit bureaus across the country.
The major credit reporting agencies are businesses in competition with each other. They do not share information about consumers’ credit files. However, under the revised credit reporting law that went into effect in 1997, lenders are supposed to share corrections they make with all credit reporting agencies to whom they report. It doesn’t always happen, but that’s the direction things are moving. In the next chapter, I’ll explain exactly how it works and how to correct errors on your credit file.