How Credit Bureaus Work
But how do these important institutions work? What kind of information do they collect? And, once they have it, what do the credit bureaus do with that information?
Information that credit bureaus collect
Credit bureaus collect a great deal of financial information about you. The idea is to build a financial profile showing your habits so that lenders and others can get an idea of how you are likely to act in situations in which you have to pay money back to others. Information that credit bureaus collect include the following:
- Payment information: This includes information about whether you make your payment on time, and how much of your minimum payment you pay. Sometimes, the amount that you pay is also recorded. Credit bureaus also report whether or not you make your payments late. Payment information can be from credit cards, other loans, landlords and even utility companies.
- Loan information. Payment information is not the only information credit bureaus collect. They also compile information about how many loans you have (including credit cards), and to whom you make payments. Loan information will also include when you opened the loan account, as well as whether it is in good standing. If the account is closed, that is noted in your credit report, along with an indication of whether you closed it or the institution did.
- Other information. In some cases, information regarding medical and utility bills appears. Other accounts that have gone to collection can also appear on your credit report. Credit bureaus also collect information on your employers, your addresses and any liens, judgments or bankruptcies that you might have had.
How do credit bureaus get this information? Well, other agencies report it to them. When you open a credit card or other loan account, the company that lends you the money reports the information to the credit bureaus. In this way, it is possible for the bureaus to obtain the information. Landlords, hospitals and even employers report information to credit bureaus. All of this information is compiled and used to create a picture of your financial life.
How credit bureaus use the information they collect
Credit bureaus are in the business of making money. They make money this by selling the information they have regarding your financial life and habits. Once they have put together your credit file, it is available for sale to any number of people – including you.
Lenders, employers, landlords, insurance agents and utilities (credit checks are becoming especially popular with cable companies and cell phone service providers) and others pay to access your credit report. They do so for various reasons. Mostly, though, it is so that they can check to see whether you are likely to make on time payments, or whether you are a risk of non-payment or constant late payments.
Another group that pays for access to your credit report from the credit bureaus are those looking to solicit your services. Credit card companies and others check into your credit to see if you “pre-qualify” for certain offers. Those credit card offers that come in the mail do so as a result of someone else check your credit.
It is important to note, though, that not anyone can just access your credit report. Law provides that the only people who can do so without your permission are companies that need the information in order to determine whether you are a credit risk. Banks, credit unions and credit card companies fall into this category. Others – insurance companies, employers and landlords – need your permission. You may sign a release when you apply for a job or a new cell phone plan.
You should also be aware that you can “opt out” of the pre-screened offers mentioned above. It is possible to contact the credit bureaus and tell them that you do not wish your information to be accessible to companies making new offers of credit to you. This can be a good way to slow the flow of junk mail to your mailbox.
Knowing what information credit bureaus collect, and how they use it, can make you a more educated and savvy consumer.
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