In the United States, there are three major credit reporting agencies: Experian, TransUnion, and Equifax. Most people have some idea as to what these agencies are. They’re the all-powerful guardians of our credit reports, of course. However, what do we know about them beyond that? What do they do at a credit reporting agency, besides having a credit file with your name on it? At Rebound Finance, we want you to be as educated as you can be when it comes to the information about your credit. So, we’re going to delve a little deeper into how exactly these agencies function, why they’re such a big part of your credit history, and how they can offer you the opportunity to improve your personal finances.
Credit Reporting Agencies: What Are They?
Experian, TransUnion, and Equifax are companies that collect all the credit information about one specific person. This means their credit history, how they handle their debt and payments, and how they deal with the loans they’ve been approved for. An agency will put together a credit report for each person, based on information supplied to them by their bank, credit companies, and lenders (click here for more information about credit reports).
Credit reports are tools used to analyze a person’s stability when it comes to their credit. They judge whether or not they’re a high-risk borrower (will they be able to repay their debts). These reports can be viewed by either a lender or credit provider or the consumer.
A credit reporting agency functions as a business and will charge a fee to any customer or credit provider who requests a copy of a credit report. Agencies are controlled by federal and state laws but are not managed by the government.
How Do They Work?
Generally, a credit reporting agency will compile and then assemble your credit information into a credit report. Here’s how it’s done:
- Creditors and lenders supply your credit information to one or all of the major credit reporting agencies. (Generally speaking, a creditor or lender will report to only one credit reporting agency, rather than all of them)
- These credit agencies will then gather additional information about your credit history from any public records, such as legal verdicts, granted liens, insolvencies, bankruptcies, consumer proposals. and debt management programs.
- Any new credit activity will be reported to the credit agency one time per month. Any existing credit report will then be updated to show this information.
- Note: credit reporting agencies will assume the information provided to them is correct. So, if they’ve reported any false information unintentionally, they will not assume responsibility for it. If this happens, you may contact your credit company, dispute the error, and have it corrected.
- If at any point in time you have used credit, a credit file has been created in your name. Other potential creditors and lenders will then be able to request to view your credit report. This is commonly known as a “credit inquiry.”
- All these factors will help a credit reporting agency judge your creditworthiness.
Essentially, a credit reporting agency will stockpile all the credit information about their customers, via lenders and creditors. They will then make a credit report, and afterward, give that information back the lenders and creditors, and in doing so, help paint a better picture of the individual that they’re lending credit to.
Services that Credit Reporting Agencies Provide
As was mentioned earlier, credit reporting agencies provide consumers, lenders, and creditors with access to an individual’s credit report, which is a file that contains all the information about their credit history and habits (keep in mind that you are the consumer and can only gain access to your credit report). In addition to these reports, credit agencies also offer:
- Credit scores: which is a 3-digit number, calculated based on the information compiled within their credit report. Credit reporting agencies provide a credit score to help lenders and creditors determine if giving the individual new credit is a good idea. The score is determined by 5 major factors: the individual’s history of payments, total debts, credit length, diversity of accounts, and new inquiries.
- Credit monitoring: All three major credit reporting agencies will provide their customers with credit monitoring. This is a service which allows a customer to gain access to their credit report and credit score, usually stored in an online profile. With this service, a consumer can watch out for identity theft, and correct any errors or false information. They will also obtain notifications when the information on their credit report is changed at all.
Is credit monitoring right for you? Check out this article.
What Can A Credit Reporting Agency Do To Help Your Situation
A significant portion of your personal finances and financial stability is determined by your credit history, as well as your credit score. With the various services that credit reporting agencies can give you, including credit reports, credit scores, and credit monitoring, you’ll be able to develop favorable credit. They’ll supply you with the necessary information to help you improve and maintain a solid credit score, solve any financial mistakes you’ve made, and in doing so, help you secure a positive financial future.
If you still need more information on your credit report, consider credit counseling.