What Are Credit Reporting Agencies And Why Do They Matter?

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Credit reporting agencies (CRAs) keep a detailed record of how you’ve managed credit based primarily on information received from lenders you’ve done business with and public records. They condense the information into a credit report, which may be sold to lenders, insurance companies and even employers.

Errors on your report could push your credit scores down, but you have legal rights based on the Fair Credit Reporting Act (FCRA) to dispute them. It’s important to understand those rights. Information on your credit report directly affects your credit score and the cost of any credit you apply for.

What is a credit reporting agency?

A credit reporting agency is a company that generates a report based on consumer borrowing and repayment histories.

The information on your credit report is used to calculate your credit score, and is mostly sold to and used by lenders to assess your creditworthiness for new debt accounts. Credit reporting agencies must comply with strict laws set by the Fair Credit Reporting Act (FCRA) that limit how your credit information is disclosed.

The three main credit bureaus in the United States are Equifax, Experian and TransUnion. Other reporting companies may also collect personal information, such as your employment, address and tenant history and other data available to the public.

How credit reporting agencies work

Credit reporting agencies are largely in the business of data collection. When you open a new credit account, whether it’s a credit card, personal loan or student loan, information about your loan is reported to credit reporting agencies. The information CRAs typically receive includes:

• The amount you borrow.
• The available credit on a credit card.
• The balance of charges on a credit card.
• The date you opened the account.
• Inquiries you recently made for new credit, even if you didn’t open any.
• Your payment history, including late payments.

If an account goes into a collection status, it’s also typically reported to the bureaus. The agencies also check for evidence of judgments, bankruptcies or tax liens by scanning public records.

Rights you should know regarding credit reporting agencies

Your credit report and corresponding credit score are a crucial part of your financial future. Incorrectly reported information can cost you hundreds, if not hundreds of thousands of dollars in higher interest rates, insurance premiums and in some cases, higher rental deposits.

The FCRA gives you the right to:

• Know what’s in your file. You can request a file disclosure that shows you all the information in your report. The disclosure is usually free.
• Ask for a credit score. It’s important to know your scores if you intend to apply for credit. Expect to pay a fee for mortgage credit reports that include your score.
• Dispute errors. You can dispute information on your credit report following the steps outlined by each credit bureau.
• Ask agencies to correct or remove inaccurate, incomplete or unverifiable information. If the agency agrees with your dispute, the error must be removed, typically within 30 days.
• Keep outdated negative information off your report. Negative information must be removed after seven years. Bankruptcies must be removed after 10 years.
• Limit access to only those with a valid need. This means not just anyone can pull your credit report. Access is restricted to creditors, insurers, employers, landlords or businesses you’ve applied for financing with.
• Prohibit employer access to your credit without your permission. In most cases, an employer will need your signed authorization to access your credit report.
• Place a security freeze if you suspect fraud. If you suspect your accounts may have been compromised by a hacker or are the victim of identity fraud, you can freeze your account.

The three major credit bureaus

The three main credit bureaus are Equifax, Experian and TransUnion. They collect similar types of information about consumers and provide similar services.

Equifax

Equifax is headquartered in Atlanta and was founded in 1899. It now does business in 25 countries, including the United States. The company had a major data breach in 2017 that affected approximately 147 million people, but has since settled the claims.

Extra perks: Equifax offers identity and credit monitoring services if you’re willing to pay for them.

Experian

Experian is one of the largest credit reporting agencies worldwide, maintaining a database of credit information on over 245 million U.S. consumers and 99.9 percent of American businesses. The company does business in over 100 different countries.

Extra perks: You can sign up for Experian’s free credit monitoring services, as well as other tools and resources for a fee.

TransUnion

Founded in 1968, TransUnion is a younger CRA headquartered in Chicago. The agency says its database contains the credit histories of hundreds of millions of people in 30 countries.

Extra perks: TransUnion offers several free financial tools, and you can sign up for paid identity theft protection or credit monitoring.

Credit reporting agencies are required to respond to any disputes you file about incorrect information. If you’re ready to clean up your credit report and start the dispute process, and have your case backed up with supporting documentation, you can send your dispute by mail, online or by phone.

Other consumer reporting agencies

You may encounter “consumer reporting agencies” when you rent a house, open a checking account or even apply for a job. These agencies collect information beyond the scope of what credit reporting agencies gather. Here’s a breakdown of the different information these types of agencies typically collect.

Bottom line

Credit reporting agencies are the gatekeepers of information between your credit past, present and future. They give lenders a historical overview of your history of credit management, how you’re currently handling it when they consider the terms of credit you get in the future.

You should get in the habit of checking your credit report each year to keep your scores in tip-top shape. Be wary of companies that promise to “repair” your credit for you — they’ll charge you a fee to do what you can do on your own with a little extra time and persistence.

Frequently asked questions

• Which credit bureau is the most accurate?
  

  Credit scoring companies follow a set of federal guidelines prescribed by the Fair Credit Reporting Agency. Some creditors may choose one CRA over another, but that shouldn’t be seen as an indicator that any particular bureau is better than any other.

• Does requesting your credit report hurt your credit?
  

  No, requesting copies of your credit reports does not affect your credit score. Checking your own credit report is considered an informational soft inquiry, which doesn’t affect your credit scores.

  This is different from a hard inquiry, which can temporarily lower your credit score by a few points when a lender checks your credit to finalize a loan offer.

• When is a company allowed to look at my credit reports?
  

  Federal law sets out strict guidelines for who can access your credit file. Credit reporting agencies may release information about you to creditors, landlords, insurance companies, utility companies and others with a valid need to check your credit history. They can only release information to potential employers if you’ve agreed in writing.

• What are the most common errors on credit reports?
  

  The most common errors include a wrong address or misspelled name, according to a recent Consumer Reports study. Typical errors related to financial information include accounts you don’t recognize and payments wrongly reported as late or missed.