Easy Overview of the Credit Bureau

What is a Credit Bureau?

A credit bureau is a company or organization that collects information from various sources to offer consumer credit information on individual consumers. A credit bureau is an organization that provides information on an individual’s bill paying and borrowing habits.

The information gathered by a credit bureau is then distributed (for a fee) to credit card issuers, such as financial institutions and credit card companies. When these agencies view the information provided by the credit bureau they can accurately gauge an individual’s credit-worthiness.

The information provided by a credit bureau enables a credit card company or lending institution to gauge a borrower’s ability to pay back a loan. This information can therefore affect the interest rate and terms of the loan. The information provided by the credit bureau will directly affect the loan obligation or offer to the consumer.

Interest rates and the terms latent in a loan agreement are not uniform. The fluctuations are based on a risk-based pricing model that is narrowly based on a borrower’s credit rating. A consumer with poor credit scores (those individuals who have defaulted on loans or made numerous late payments) or court adjudicated debt obligations, like bankruptcies or liens, will pay higher annual interest rates than borrowers who possess strong credit ratings.

Credit Bureaus in the United States and Data Furnisher

In the United States, a credit bureau will collect and collate personal information of a consumer, as well as financial and alternative data from a variety of sources, known as data furnishers, with which the credit bureau has a relationship. A data furnisher, in most instances, is typically a creditor, lender, utility, court system (information obtained through public records), or debt collection agency.

The data furnishers that provide information to a credit bureau concerning a particular individual are those lenders or agencies who have developed, in some form, a business relationship with the borrower. A data furnisher will report the payment experience that they had with the prospective borrower.

The resulting information is then made available upon request to customers of the credit bureau for the purpose of assessing the individual’s credit risk. In addition, this information can be used to assess the individual’s credit score in alignment with their ability to obtain a lease or employment.

In the United States, the legal classification for a credit bureau, based on the Federal Fair Credit Reporting Act, is a consumer reporting agency. A credit bureau, in the United States, operates under Federal law to ensure those consumer protections and the general rules or governing guidelines concerning the exchange of personal information is adhered to.

All credit bureaus in the United States must follow these regulations implemented by the following Federal legislations: the Fair Credit Reporting Act, the Fair and Accurate Credit Transactions Act, Regulation B, and the Fair Credit Billing Act.

Federal Laws and a Credit Bureau

A credit bureau and their coordinating clients, in the United States, will be governed by two Government bodies. The Federal Trade Commission has oversight for the consumer credit bureaus, while the Office of the Comptroller of the Currency regulates and supervises all national banks that do business with credit bureaus.

NEXT: The Importance of Credit Scores