Credit Bureaus: Credit Rating Agencies

Credit rating agencies, our business is their business. An excellent credit score usually makes the difference between a “yes” or “no” on your loan application. Most information in credit reports is positive, and millions of people get approved for loans without a hitch. But it doesn’t always work that way. The problem is, you may think you have an average credit score, but if you haven’t checked it, you can’t be sure you do.

Credit reports aren’t perfect. Some contain mistakes or old information. Those discrepancies are often pretty harmless—an address or employment information that’s out of date, for example—but sometimes they are serious enough to cause people to be turned down for mortgages or even jobs.

Even people who are sure they have “good credit” are rejected for loans because they don’t really understand what lenders are looking for when they review credit reports. There are a lot of misconceptions about how credit really works. I logged on to one of the popular on-line services recently and started reading some of the members’ back-and-forth messages about credit reports. I was shocked by how much wrong advice people were giving one another. Let me try to help set things straight.

Credit bureaus, also called credit reporting agencies, are companies in the business of collecting, packaging, and selling information about our financial lives to lenders, employers, insurance agencies, and other customers. Those customers then use that information to make decisions about whether to offer loans or other services. There are hundreds of credit bureaus across the country, but in most cases you’ll deal with one that is affiliated with one of the three major national credit systems: Experian (formerly TRW Information Systems, Inc.), based in Orange, California; Trans Union, headquartered in Chicago, Illinois; and Equifax (formerly known as CBI/Equifax), based in Atlanta, Georgia.

You will sometimes hear references to five major credit bureaus. In addition to the three credit reporting agencies just mentioned, there used to be two other large credit systems: CSC Credit Services and Chilton. In the late 1980s, CSC Credit Services agreed to use the Equifax system as an affiliate, and Chilton was bought out by TRW, which in turn was later sold and its name changed to Experian.

In addition to the three major national credit reporting agencies, there are hundreds of other credit bureaus called affiliates. These affiliates generally have collected credit information in specific regions of the country. Instead of being bought out or put out of business by one of the Big Three agencies, they work as affiliates of one of them.

These affiliates collect financial information for customers in their area and then store the information with one of the major credit agencies. They’ll pay that agency to store the information in their database, and the agency will pay the affiliate to sell that data to customers outside their market.

So, for example, one of Experian’s affiliates is Credit Data of New England. Credit Data stores its information about consumers on Experian’s database, and Credit Data and Experian pay each other to sell data about consumers in each other’s markets. If there’s a problem with information in your credit file and you live in Credit Data’s area, you’ll probably get referred directly to them (not Experian) to correct it. If Credit Data makes a correction, the correction will automatically be made in Experian’s files as well.

There are also mortgage reporters. Many of these smaller bureaus use credit report information provided by two or three of the major credit agencies to create detailed or specialized credit reports for real estate lenders. Since they are using information from two or more credit agencies, mortgage reports are usually more complete and detailed than those of a single credit bureau.

There are also resellers or brokers, which are companies that purchase credit reports for infrequent users of reports. By acting on behalf of several smaller creditors, they are able to buy reports for a smaller fee than the individual granter could do on their own. Generally, resellers purchase reports for medical offices, landlords, and insurance companies.

Although any type of credit bureau can be called a bureau or a reporting agency, I’m going to use the term credit reporting agency when I’m specifically talking about the three major bureaus (Equifax, Trans Union, and Experian). Otherwise, I’ll just use the word bureau to refer to any type of credit bureau that may collect or sell information about you.