Just What is a Credit Bureau?

A “Credit Bureau” (also called a “Credit Repository” is a private company that gathers, stores, and records the credit history and payment habits of millions of people. They generate billions of dollars in profits by selling these records to mortgage and other lenders.
The Credit Bureaus have no legal authority as they are in no way affiliated with the United States government. But, nevertheless, they do have enormous power and influence over the lives of virtually every American, including you!
The three major credit bureaus are - TransUnion, Equifax, and Experian.

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What is a “Credit Report”?

Your credit report includes information on your open and closed accounts with mortgage lenders, auto loan lenders, credit card companies, and merchant lenders.

It also includes public records such as liens, repossessions, court judgments, foreclosures and bankruptcy.
Now when a lender is evaluating someone for a loan he will contact one (or more) of the credit bureaus and buy a copy of the credit report for that applicant. Based on the information in the credit report and “Credit Score” the lender will decide whether the borrower is a good risk or a poor one.

After reviewing the credit report the lender decide whether or not to grant the borrower a loan. If he is granted a loan, his credit report and score will determine what interest rate he will have to pay.

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What is a “Credit Score”?

Each credit Bureau assigns you a 3 digit number based on the data in your credit report. This is called your “Credit Score” and it is meant to show your credit worthiness. The higher your score is, the better your credit.
This table will give you some idea of what constitutes a good or a bad score.
Below 585 Very poor 585 - 669 Poor 670 - 699 Fair 700 - 729 Good Above 730 Excellent
Each Bureau uses a different mathematical model in determining your score, and so your credit score will vary depending on which Bureau is reporting it. But they are likely to be not far apart.

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How is a “Credit Score” Calculated?

In calculating your credit score five basic factors are considered in varying degrees, approximately as follows:
Payment History 35%
• Have you made timely payments on your bills?
• Have there been late payments?
• Just how late?
• How often have payments been late?
• Have accounts been turned over to collection agencies?
• How many?
• Are there repossessions on your credit report?
• Have you ever been in bankruptcy?

Current Level of Debt 30% What is the total level of all your current debts?
Length of Credit History 15% How many years have you carried debt? Lenders like to see a long history (of accounts paid on time) and not a short one

Types of Credit 10% Most accounts are either “revolving” or “installment” accounts.
Mortgage and car loans are of the installment kinds. You pay a predetermined amount at regular intervals.
Credit card accounts are revolving accounts. You have flexibility as to how much you pay each time, but they often do require a minimum payment.

It’s best to have a “healthy mixture” of both kinds..
Pursuit of New Credit 10%
Have there been lots of recent “inquiries” (potential lenders buying your credit report)?
Lenders would rather not see too many recent inquiries. It could mean that the consumer is in danger of “getting in over his head”.

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How Does This Apply to You?

Credit bureaus keep records on millions of citizens, so it should come as no shock that there will be a few mistakes. But unfortunately, the mistakes number more than a few. In fact, it’s estimated that anywhere from a third to a staggering 90% of all credit reports have mistakes.
Let’s say it in different words - at a very minimum there’s a 1 out of 3 chance that your credit report has errors!
Now considering the importance of your credit score those are NOT very good odds - and that’s looking at the LOWEST estimate!
And how many mistakes does it take to negatively impact your credit score? The answer: “ONLY ONE”
Now a person would think that regarding something as critical as your credit … something that affects your life to such a degree … that there would be a greater effort to “get it right”.

You may be thinking “Well, there ought to be a law …”
Fortunately there is! The United States Congress passed one to address the problem … The Fair Credit Reporting Act, or FCRA.
Under the FCRA everyone has the right to challenge the accuracy of information in their credit report. When you dispute information with the credit bureaus, by law they have 30 days to investigate your dispute. If during those 30 days they cannot or do not verify the accuracy of the information, by law they must remove it.

That’s wonderful news for consumers. But there’s a problem.
Looking at it from the credit bureaus’ point of view the FCRA is a “thorn in the side.” There’s nothing in it for them except lost time, money, and productivity.

And for that reason they don’t go out of their way to make it any easier for consumers. They know how to utilize a “loophole” in the FCRA, the “frivolous” issue. If the credit bureaus deem a dispute “frivolous” they don’t have to dispute it. And who initially decides if the dispute is frivolous? Why, the credit bureaus!.

Needless to say the bureaus are quick to label disputes as frivolous even if they are not. And although the consumer can always take them to court if they can afford to, most people just can’t afford to hire the high priced lawyers the credit bureaus can … especially those who are paying exorbitant interest rates because of mistakes on their credit report!

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