Credit reporting agencies are private, non-governmental companies that gather credit and payment history records to create a profile and credit score that rates your reliability as a borrower. These companies maintain and sell this information to other companies wanting to know if they can trust you with loans, credit cards, and other credit-related products for which there is a payment risk. Almost every type of monthly payment and major financial transaction is recorded by one or another reporting agency, including credit card use, mortgage payments, automobile payments, insurance payments, check writing consistency, and more. This information is then processed by the credit reporting agencies and it results in a credit score number which ranks your performance on a scale from 300 to 850. While much of the data gathering is conducted by smaller companies, the main credit reporting bureaus, often called the “Big Three”, are Equifax, Experian, and TransUnion.
Some Background on the Big Three
These companies have been around for many years and they control the credit reporting market. They sell consumer credit histories to credit card companies, banks, credit unions, insurance companies, employers, and various financial institutions curious about whether or not they can trust you, the consumer, with their business. They gather information on their own, from other reporting agencies, and from public records like court judgments, foreclosures, bankruptcies, and tax liens.
While your credit report and credit score are not the same from each of the three major credit reporting agencies, they are usually very similar. Companies such as FICO (the Fair Isaac Company) have created computer programs that each reporting agency uses to calculate credit scores and maintain credit reports on every American using the collected data. These credit scores fluctuate based on weights given to various aspects of credit activity, like making or missing payments.
What Is on My Credit Reports?
Your credit report contains a lot of information, and understanding it isn’t always easy, particularly because there may not be explanations for a lot of items. Consumer credit reports are divided into several sections that include the following data:
- Consumer information such as your name, address, birthday, social security number, employer, spouse information, and whether it’s a joint report
- A credit report summary showing your scores, late payments, and how much credit the computers decide that you have
- Information on mortgages
- Information on consumer trade lines (which are loans or lines of credit) which aren’t mortgages, including car loans, credit cards, collections, and charge offs
- A statement of pubic records showing judgments, tax liens, or bankruptcies
- An explanation about your credit score risk
- A list of credit inquiries with information concerning who pulled your credit and when
- Alerts concerning fraud and other risky activity
- Employment history information
- An address history
- Credit bureau contact information
How Important Is Information Gathered by Credit Reporting Agencies?
The information gathered by credit reporting agencies as well as the reports and scores they generate are extremely important. This information is vital to any consumer who lives in modern society. The information reflects your behavior as a borrower and it directly affects your ability to buy a house, have bank accounts, get insurance, receive credit cards, purchase a car, and in some cases, get a job.
Like It or Not, They’re Here to Stay
While many like to comment on how the credit reporting agencies have a lot of power, it’s important to keep in mind that their methods are objective and they deal with millions of people. They are not out to get anyone, and they provide a service that everyone needs. The information they gather reflect each person’s habits and patterns of financial behavior. Additionally, without their service, there would be no simple and fair standard allowing us to interact with complicated financial transactions and institutions.
Give Yourself a Break
Unfortunately, many consumers treat their credit like an enemy and behave as though the credit industry is out to get them. Understanding your credit responsibilities is one of the first steps to understanding the reporting agencies and their role in our lives.