What is a credit bureau? For one reason or another, you’ve probably heard of Equifax, TransUnion, or Experian. These are the three big credit bureaus in the United States. A credit bureau is an organization that gathers and studies a person’s credit data, which is provided to them by creditors/lending institutions.
But how do they make money? Once they’ve got the data, they wrap it up in a bow and sell the information they’ve accumulated to creditors. So, when you’re applying for a loan of some kind and the powers that be need to decide what to do, the information the creditors use to make their decision is information bought from the credit bureaus.
To make it clear, credit bureaus do not decide whether you get credit. They merely collect data and issue it to whatever financial institution requires it. That being said, not all the information a credit bureau has is necessarily accurate. Each year an individual has the right to request one free credit report. This is possible from an amendment made in 2003 to the Fair and Accurate Credit Transactions Act. You’re also entitled to a free copy of your credit report if it’s used as the basis for a negative credit decision.
In fact, a study done by the Federal Trade Commission (FTC) in 2013 reported that one out of five individuals had an error in their credit report. In some cases, the fix to their credit report resulted in a 25-point difference in their score and in rarer cases, a 100-point difference.
In sum, credit bureaus collect information about you, generate credit scores, and sell the information to financial institutions. They don’t have a say in whether you get a loan or not. Check with a credit bureau to see your reports to verify there aren’t any errors, especially if you’re trying to get a line of credit. Remember, it’s free at least once every year.