Understanding Credit Bureaus

What they do, and how to deal with them.

A credit bureau is simply a private business that collects information relevant to credit worthiness of both individuals and businesses. The use of computers has greatly changed the operation of credit bureaus. Cooperation between credit bureaus in different parts of the country has made it possible to share information between them, and there are few people who will not show up in one form or another in credit bureau information files.

How Credit Bureaus Operate

Generally, a credit bureau is a private business that earns its profits from fees that it derives from providing credit reports to credit sellers. Obviously, this information can be sold to more than one seller in a particular market. For example, if a person moves to a new city, say Atlanta, and applies for credit at four local businesses, the credit bureau may be able to sell reports on this one individual to all four businesses.

Although at one time most credit bureaus were nonprofit organizations of one kind or another, now most credit bureaus are for profit operations in one of two categories: (1) local credit bureaus and (2) those owned by large national corporations. Credit bureaus get their information by sharing information with one another and from verifying employment and bank records. Credit bureaus also derive information from open public records, such as court records and lien records.

For example, a credit bureau would check the public record to see if a certain individual or business had filed for bankruptcy. However, credit bureaus get lots of information from credit sellers themselves. The bureau will have information about not only where credit has been granted but the payment history of the applicant as well. For example, was the payment normally on time, was it slow but consistent, or was it somewhat erratic?

Credit Reports

There are two different types of credit reports: (1) written reports and (2) oral reports. Subscribers to credit bureau reports can call up the credit bureau for an oral report. A subscriber will call the credit bureau, furnishing the name and social security number of the applicant. The credit bureau will then try to locate the applicant in its computer files. Typically, this will be done in a very short time. The credit bureau will then read off the record of transactions. These are typically credit accounts with some notation of the applicant's bill paying history.

For example, the report may mention that the applicant was consistent and prompt or consistent but slower. Alternately, the report may list several negative factors, including a recent bankruptcy. Credit bureaus don't normally assign an overall rating in an oral report. The subscriber needs to listen and evaluate the report and make up their own minds.

Written reports normally provide a great deal more detail. The advantage of the written report is that the subscriber can more carefully read and evaluate the "hits." On the other hand, credit bureaus impose a higher charge for written reports. So the cost must outweigh the utility of having the extra time to examine the record.

Standardized Reports

Although many credit bureaus are independently owned, the associated credit bureaus, a membership association, has introduced some standardization into the format of written credit reports. The standard format adopted by the Associated Credit Bureaus (ACB) are incorporated in "Form 2000."

Privacy Concerns

When you use credit, you surrender a certain amount of privacy, whether you know it or not. In a standard credit report, businesses will be able to see the exact amount of your purchases made on credit and your repayment history. Many consumers are unaware that this type of information is not only collected but is also routinely passed between various kinds of businesses. In fact, some credit bureaus routinely sell lists of individuals who are good credit risks. Banks, financial institutions, and retailers are eager to buy such lists because those are potential customers they would like to court.

How to Get a Copy of Your Credit File

Some of the better known national credit bureaus include:

1. TRW Information Services;

2. Trans Union Credit Information Company; and

3. CSC/Equifax.

TRW Information Services has a nationwide computerized credit checking system. TRW, because of its size, is able to update the information in its file on a monthly basis. Trans Union Credit Information Company is another national computerized credit bureau that also offers a unique service called TRACE, which can locate a consumer by their social security number. Equifax also provides consumer, as well as commercial, credit reports.

Federal law requires these companies to provide you with a copy of your credit report. These are available by writing to: