Reason for credit bureaus
The credit bureaus originated as a collector and clearinghouse of consumer information. In the beginning, this consisted of a list of people who were considered credit risks. Prior to that, most merchants only extended credit to people they knew personally. As the population became more mobile and the economy expanded during the roaring twenties, the need for updated credit data grew significantly.
In those early days, data collection and transmission was completely manual and time-consuming. The number of credit reporting agencies grew rapidly to fill the information void that developed as new financial products such as credit cards and home equity loans began to emerge. They quickly moved to automate their processes as computers became available and the internet came of age.
The three major credit bureaus
Equifax was originally founded as the Retail Credit Company in 1899. It grew quickly and expanded throughout the United States and Canada. As its database expanded into the multimillions, the government recognized a need to protect consumers and passed the Fair Credit Reporting Act (FCRA) in 1970. The name of the company was changed in 1975 to help dress up its image with the general population.
TransUnion was formed in 1968 by Union Tank Car, and a year later it diversified its holdings into the credit reporting industry. It expanded by buying several smaller agencies that already had contracts with local merchants, and bringing them under their umbrella. This allowed them to secure retail contracts that would not have otherwise been available until they came up for renewal.
While Experian was founded in 1980 as CCN Systems in England, its significant U. S. presence was achieved through the acquisition of TRW Information Systems (commonly known as TRW Credit). When viewed in aggregate, the three major bureaus each manage about 200 million credit files, and process several billion bits of information every month.
Heading: Who regulates the credit bureaus?
President Wilson signed the law that created the Federal Trade Commission (FTC) in 1914, with the stated purpose of preventing unfair competition in commerce. Its authority has been expanded over the years to include consumer protection in credit and lending practices. The enforcement of the Federal Credit Reporting Act resides with the FTC. This act contains specific provisions that specify how credit information may be used and disseminated. In order to access your records, a business entity must demonstrate that it has a “permissible purpose” to determine your creditworthiness. Otherwise, anyone seeking credit information about you must obtain your advance written consent.
The FCRA guarantees consumers certain rights such as copies of your own report, the right to request corrections, deletions of outdated information, restricting your file only to those with a permissible purpose, and the initiation of a freeze on your file if it has been compromised. The enforcement powers of the FTC include the criminal prosecution of any person or organization that attempts to access your report through false pretenses.
What companies report to credit bureaus?
Larger companies that extend credit normally report to the big-three bureaus. These include savings & loans, mortgage companies, banks, major retailers, finance companies, and issuers of credit cards. Both secured and unsecured loans will be reported, to include mortgages, refinances, home equity, student, installment, automobile, and revolving lines of credit. Debts that you pay off with smaller companies will not always be reported, but they will usually report any negative information. While the agencies are supposed to report both the good with the bad, the reality is that coverage tilts toward the negative, especially with landlords, utility companies, and small retailers.
For younger people, this presents a challenge since they are typically the ones that obtain smaller loans, rent apartments, and have cards with low credit limits. The FTC is evaluating ways to increase the positive coverage for loans and credit that have fallen below the radar in the past. This would help the young to start to build their credit before they are faced with the need for a large sum of money, only to find they are unable to qualify.
Why don’t all three credit bureaus agree?
The three major bureaus are completely separate companies, and are managed and operated independently from one another. The methods they use to collect and assimilate data are proprietary and do not always agree. In addition, the quantity of credit transactions numbers in the billions on a monthly basis, so the possibility of some of these either falling through the crack or being reported inaccurately is fairly substantial. Mistakes are bound to happen, so you must be vigilant in ensuring that you do not fall victim to them.
Beyond that, each company interprets and presents the information they gather in different ways. The algorithms and formulas they use to calculate your credit score are not exactly the same, so most potential lenders will obtain at least two of your scores. You may not know which ones they will use, so it’s critical that you verify and correct your reports on a regular basis.
- Who Are the Three Major Credit Bureaus?
- Who Can Access My Credit Report?
- The Way to Good Credit
- What is an Experian credit report?
- What is a credit lock?