Lecture Notes: Top 3 Credit Bureaus: How They Work and What They Know About You

Overview of Credit Bureaus

• Three Major Bureaus: Equifax, Experian, TransUnion
  • Collect and sell data on consumer spending and borrowing habits
  • Compile credit reports and scores ranging from "poor" to "excellent"
• Importance: Credit ratings influence approvals for credit cards, mortgages, car loans, or leases

Functionality of Credit Bureaus

• Data Collection: Gather personal and financial information
  • Personal data includes name, address, Social Security number, DOB
  • Financial data includes payment history, debt outstanding, credit applications
• Credit Scores: Numerical representation of credit history
  • Scores range from 300 to 850
  • Derived from credit reports
  • Factors: late payments, debt amount, credit history length, credit mix, credit applications

Regulation and Reporting

• Regulation: Governed by the Fair Credit Reporting Act (FCRA)
  • Defines collection, dissemination, and disclosure of consumer information
• Data Sources: Banks, finance companies, retailers, sometimes landlords
• Annual Reports: Consumers entitled to free annual credit reports from all three bureaus via AnnualCreditReport.com

Details on Each Bureau

• Equifax: Headquarters in Atlanta
  • Operates in 24 countries
  • Emphasizes Southern and Midwestern US
• Experian: Headquarters in Costa Mesa, California
  • Corporate HQ in Dublin, Ireland
  • Operates in 30 countries
• TransUnion: Based in Chicago
  • Regional offices globally
  • Employs over 10,000 people

How Information is Collected and Used

• Reporting: Lenders report debts, payment history
  • Overdue payments reported if 30+ days late
• Tax Implications: IRS does not report directly but tax liens are public record

Lender Use of Credit Reports

• Lenders: Use reports from credit bureaus to determine creditworthiness
  • Mortgage lenders typically check all three bureaus
  • Credit inquiries may temporarily impact scores
• Credit Scores: Utilized for loan, credit card approvals
  • Scoring by FICO and VantageScore using proprietary models

Difference Between Credit Bureaus and Credit Rating Agencies

• Credit Rating Agencies: Focus on companies/governments, not individuals
  • Major agencies include Fitch Ratings, Moodys, S&P Global
  • Evaluate financial stability for debt issuance

Checking and Correcting Credit Reports

• Accuracy: Check reports for errors
  • Address inaccuracies before applying for major loans
• What’s Not Included: Marital status, medical history, buying habits, income, etc. not on credit reports

Conclusion

• Importance of Credit Reports: Critical for credit applications and financial health
• Advisory: Obtain and review credit reports before applying for credit to ensure accuracy and address issues