A credit bureau is a company that collects consumer credit information from various sources and sells the consolidated information in the form of a credit report.
Many businesses rely on information from credit bureaus to approve your credit applications, set your pricing, and maintain your account. Credit bureaus don't make decisions about your application, such as approving or denying a credit card application, but the information they have on record affects a major part of your life.
Understanding how credit bureaus work can help you be sure your credit information accurately reflects your financial activity.
Definition and Example of a Credit Bureau
Credit bureaus are in the business of collecting and combining consumer credit information and then selling the information to third parties.
Credit bureaus gather account details from companies you have financial accounts with, third-party collection agencies, and public records. All the information they've collected about you is combined into a credit report and sold to banks, financial institutions, insurance companies, and even to you.
Equifax, for example, collects information from credit card companies, lenders, and collection agencies. The bureau also checks public records for actions like bankruptcy and foreclosure. Businesses can purchase consumer information from Equifax and use it to make informed decisions regarding the creditworthiness of their customers.
- Alternate name: Credit reporting agency, consumer reporting company
How Credit Bureaus Work
The concept of a credit bureau dates back to the 1800s when local lenders shared a list of customers and businesses who had defaulted on their loans. Over the years, credit bureaus evolved and grew as consumers used more credit, lending decisions became more automated, and technology advanced.
In 1970, the Fair Credit Reporting Act (FCRA) was passed to ensure consumers have an accurate and complete credit report. The law requires credit bureaus to investigate consumer disputes, remove outdated information, and let consumers know which businesses have accessed their credit information.
In 2003, the Fair and Accurate Credit Transactions Act amended the FCRA, giving consumers the right to a free credit report each year from the three main credit bureaus (Equifax, Experian, and TransUnion). You can request your free credit report directly from one of the three bureaus, or from AnnualCreditReport.com.
While most consumers are familiar with the big three nationwide credit bureaus, there are other specialized credit bureaus that play a role in decision-making for specific industries too. Below, learn about some of the other duties credit bureaus take on.
Credit bureaus rely on lenders, credit card issuers, and businesses to send consumers' information to them. Businesses aren't required to report consumer information to the credit bureaus, rather, they’re only required to give accurate information when they do report. Businesses that do provide credit information tend to bulk upload data each month according to established formatting standards.
As part of their efforts to only report accurate consumer information, credit bureaus screen businesses before allowing them to start sending data. The screening process aims to ensure data quality and prevent fraud.
Credit reports are just one of the products credit bureaus offer. The major credit bureaus also sell credit scores, which are numbers that predict a consumer's likelihood of default based on their credit information. Businesses use credit scores to approve or deny a consumer's credit applications and set the pricing terms. Credit bureaus are legally required to allow consumers to access their credit scores.
The major bureaus offer several other products to help businesses provide better credit decisions and reduce risk, as well as aid consumers in monitoring and managing their credit.
Types of Credit Bureaus
Most people are familiar with the largest credit bureaus, but there are several other types of credit bureaus that collect and provide specialized consumer information. Below, find descriptions of the most common types of credit bureaus that exist.
Nationwide Credit Bureaus
When most people mention credit bureaus, they're referring to one of the three major national credit bureaus: Equifax, Experian, and TransUnion. These bureaus report your payment history, the amount of credit you're using, collection accounts, public records, and inquiries from companies who have requested your information.
Employment screening companies provide data on your credit history, employment, and salary, as well as your education and professional licenses. These bureaus collect your information when requested by a company, often when you are a final prospect for a position there.
Employment screening companies may only have your personal information after you authorized an employer to access your report.
Tenant screening companies help landlords and property management companies screen potential tenants. They may collect information about identity verification, rental history, evictions, address history, and criminal and court judgments.
Check and Bank Screening
Check and bank screening companies provide information to help banks and credit unions determine whether to offer a checking account to applicants. They report information on unpaid checking account balances and suspected fraud.
Personal Property Insurance
Personal property insurance reporting companies collect and report details about insurance claims on homes, auto, and personal property. This may include types of loss and amounts paid on claims, as well as motor vehicle records and traffic violation data, if applicable.
Medical consumer reporting companies collect and report certain medical information, but generally only do so if you've authorized the release of your information. These companies report your medical information to life and health insurance companies in order to assess your risk and eligibility during the underwriting process.
Low-income and Subprime
Low-income and subprime reporting companies collect and report information on payday loans, check cashing services, rent-to-own businesses, and other services that target low-income and subprime consumers.
- Credit bureaus collect and combine credit-related consumer history from lenders, credit card issuers, and other businesses with the purpose of selling it to other businesses.
- There are three major nationwide credit bureaus in the U.S.—Equifax, Experian, and TransUnion—as well as dozens of smaller, specialized credit bureaus.
- The Fair Credit Reporting Act requires credit bureaus to provide accurate credit reports.
- Some credit bureaus use the credit information they've collected to offer additional products to consumers and businesses.