Understanding how credit bureaus work can help you keep your financial life in order.  These companies gather information about you and use it as a way of looking at your financial history. They play an important role in everyone’s financial life. Credit bureaus’ evaluation and the score they give you determines if you can take out a mortgage and own a house, buy a car, or get your desired job.

With such a huge effect on your life, it is important to understand exactly what credit bureaus do and why they are important. Read on to learn more.

What is a Credit Bureau?

A credit bureau or a credit reporting agency is an organization that collects and stores information regarding consumer credit profiles. These companies help businesses make lending and credit decisions. Credit bureaus gather information about you to see how you have managed your credit and use it to create your credit report. They then score you based on your credit report to assess the risk of you paying back any loans or credit cards you have (or request in the future).

What Information Do Credit Bureaus Collect?

Credit bureaus use the information they gathered about you to create your credit report. Now the question that comes to mind is, what exactly is included in a credit report? What is this information that we are talking about?

The first thing in your credit report is your personal information, including your name, date of birth, address, social security number, and maybe your employment information. It also includes information about your credit and the terms of your credit, such as your credit card accounts, mortgages and loans, debts, and payment history. You can also see all the inquiries into your credit that were submitted by potential lenders as well as your public records, such as tax liens or any court judgments against you.

How Do Credit Bureaus Get Your Information?

Credit bureaus collect information from different entities such as creditors and debt collectors, including lenders and banks, account holders, and other accessible public record sources.

It is worth noting that creditors are not required to send your information to the credit bureaus. Also, credit bureaus do not pay to get this information.  Access to someone’s consumer credit history helps a business lower their risk and provides a stronger basis for either approving or rejecting the new applicant’s credit request.

Who are the Major Credit Bureau Companies?

Numerous consumer reporting agencies in the US gather data and sell it to businesses and authorized individuals. There are three major credit bureau companies: Experian, TransUnion, and Equifax. If you have a credit card or loan, you likely have a credit file with one or all of the major credit bureaus. These companies are not affiliated with each other and do not share information.  However, they all gather their information about you from the same sources; the information with each company may have small differences.

How Do Credit Bureaus Use Your Information?

As you can see, credit bureaus collect a lot of information about you. They use this information to create your credit report and calculate your credit score. People or businesses pay them to get this information for the following reasons:

• To make lending decisions, such as offering you a credit card or loan and determining the interest rate.
•  For determining insurance prices.
• To evaluate lease applications.
• For employment background checks.
• To decide whether you must pay a utility deposit.

Why Check All Three Credit Bureaus’ Reports?

Your credit score can be different with each of the three credit bureaus because each credit bureau uses a different scoring formula, not all lenders send information to all three bureaus, plus many other reasons. Therefore, checking all three of your credit reports is highly recommended. 

Checking all three of your credit reports offers you a thorough overview of what is on your report therefore making it simple to spot discrepancies that could affect your credit score. Additionally, when applying for a loan, a lender will “pull your credit”, they may pull one, two, or all three reports. If a lender can not determine your eligibility for a loan based on one credit report, they may pull additional reports.

Wrapping Up…

Hopefully, we have shed some light on how credit bureaus work and why they should matter to you. Just remember, credit bureaus lay important groundwork for the financial world to work. Review your credit reports from each bureau regularly. If you need to address any errors or discrepancies on your reports or feel you need credit repair services, the Mortgage Ready Program is ready to help.