What Is A Credit Reporting Agency And Why Do They Matter?

Credit reports provide a detailed record of how well you’ve managed credit over time. The information in your credit report can affect everything from the credit cards and loans you qualify for to the jobs and apartments you can get. Credit reporting agencies create these important documents. Understanding how credit reporting agencies work can help you ensure the information in your file is accurate.

What is a credit reporting agency?

A credit reporting agency is a company that collects information about your borrowing and repayment history and compiles the information into a credit report. Lenders, landlords, employers and others can request a copy of your credit report if they have a valid reason to see the information.

Credit reporting agencies are also known as credit bureaus or consumer reporting agencies. The three main credit bureaus in the United States are Equifax, Experian and TransUnion, but lesser-known companies also collect credit histories.

Credit reporting agencies: The basics

Credit reporting companies collect information about your borrowing and repayment history, such as how much you owe on your credit cards and whether you make payments on time. They sell that information, in the form of a credit report, to potential lenders and others who have a valid need for your credit history.

Companies with which you have accounts — such as banks, credit unions, auto lenders and mortgage lenders — voluntarily send information about you to the credit bureaus. Some companies only report to one bureau, while others report to multiple bureaus.

Credit reporting agencies can also get information about you from public records, such as bankruptcy filings or other court documents.

How credit reporting works

Credit reporting plays an important role in the modern economy. The credit reporting system provides the information lenders, employers, landlords and others need to decide whether to do business with someone.

People with a valid need for your credit information can request a copy of your credit report to make certain decisions about you. For example, a bank might check your credit before deciding to offer you a new rewards credit card. Similarly, a utility company might request your credit report to decide whether to offer you services or require a deposit.

While credit reporting may seem like a hassle, it’s good for consumers. Before credit reporting existed, people could only get credit in their local communities, where their reputations were known. Now, it’s possible to live anywhere in the country and bring your reputation — your credit history — with you.

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. However, they work independently, so each bureau might have slightly different information about you.

Equifax

Equifax is headquartered in Atlanta. The company was founded in 1899 and now does business in 25 countries, including the United States. Equifax says it has collected consumer credit data on more than 245 million Americans.

Experian

Experian is a global credit reporting agency that has operated for more than 125 years. Its North American headquarters are in Costa Mesa, California. According to Experian, the bureau maintains files for 245 million American consumers and collects 1.3 billion updates each month.

TransUnion

Founded in 1968 and headquartered in Chicago, TransUnion is the youngest of the three major bureaus. The agency says its database contains the credit histories of more than 260 million Americans, based on information provided by more than 85,000 companies.

Other credit reporting agencies

The three main credit reporting agencies are not the only companies that collect and share information about your credit history. Many other companies collect information for a specific purpose, such as employment or tenant screening.

Employment screening companies

Employment screening companies aim to provide potential employers with relevant information about you. In addition to credit-related data, they collect information about your salary, education and employment. Generally, these companies won’t have a file on you unless you authorize a pre-employment credit check.

Companies include: Experian Verify, Certiphi, The Work Number, HireRight

Tenant screening companies

Tenant screening companies create consumer reports to help landlords vet potential tenants. The information typically includes your credit report. It may also include a criminal background check or information about your income, employment and rental payment history. These credit reporting companies typically only create a file on you when you apply for rental housing.

Companies include: Experian RentBureau, TransUnion SmartMove, AppFolio, AmRent

Check and bank screening companies

Check and bank screening companies create reports to help banks decide whether to offer someone a checking account or cash their checks. The report includes banking-specific information such as unpaid overdrafts or suspected check-writing fraud.

Companies include: ChexSystems, Certegy Payment Solutions, CrossCheck

How to manage your credit reports

A variety of credit reporting companies keep a file of your credit history. To manage your credit reports, you must understand your rights, request copies of your reports regularly, and dispute incorrect information.

Understand your rights

Credit bureaus are regulated by the Fair Credit Reporting Act (FCRA), a federal consumer protection law. The FCRA is designed to protect your privacy and ensure your credit reports are accurate.

Under the FCRA, only people with a valid need (like potential lenders) are allowed to request your file. You have the right to see the information a consumer reporting agency has in your file. You also have the right to dispute information that is incomplete or inaccurate.

Request copies of your credit reports

Reviewing your credit reports helps you understand the information lenders and other organizations see when they perform a credit check. It also helps you identify potential errors that need to be corrected.

You can request free credit reports from Equifax, Experian and TransUnion each week at AnnualCreditReport.com. Contact each company directly to request a copy of your report from other credit reporting agencies.

Dispute inaccurate information

If you notice errors in your credit reports, you can take steps to get the errors fixed. File a dispute with each credit reporting agency that’s reporting the inaccurate information, either on your own or with the help of a credit repair company.

You can choose to file your dispute by phone, by mail or online. Whichever method you choose, you’ll need to identify the mistake, ask that it be corrected and provide any documentation that supports your request.

The bottom line

Credit reporting agencies collect information about how well you manage credit and share that information with potential lenders, employers, landlords and others. The information in your credit file can have a significant impact on your financial life, so you have a right to know what information the credit bureaus are reporting and correct any information that’s not accurate.

To stay on top of your credit report information, request copies of your credit reports from the main bureaus and any specialty agency you believe has a file on you. Review the reports carefully and file disputes if you find any errors that need to be fixed.

Frequently asked questions

• Which credit bureau is the most accurate?
  

  One credit bureau is not necessarily better than the others. By law, all credit reporting companies must aim for the maximum possible accuracy when they prepare credit reports. The companies that report to the credit bureaus are also required to ensure the information they provide about consumers is accurate.

• 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 a soft inquiry, which is a type of credit check that’s done for informational purposes.

  In contrast, when a lender requests your credit report to decide whether to offer you a loan, that’s considered a hard inquiry. A hard inquiry may temporarily lower your score by a few points.

• 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?
  

  While credit bureaus aim to create accurate reports, there may be errors in your personal or financial information. The most common errors include a wrong address or misspelled name, according to a recent Consumer Reports study. The most common errors related to financial information include accounts you don’t recognize and payments wrongly reported as late or missed.