What Does a Credit Report Agency Do?
When you apply for a new credit card, mortgage or loan, your financial history is checked by lenders and compiled into a report that can determine whether you receive that new line of credit and the interest rate attached to it. The companies that compile this information are known as credit report agencies. These organizations aren't household names but have a major impact on your finances, particularly when it comes to your ability to get loans or mortgages and how much you pay for those items.
There are four major traditional consumer reporting agencies (known in the industry as CRAs) in the United States: Experian, Equifax, TransUnion and Innovis. These are for-profit businesses that do not have government affiliations. They are competitors but do join a trade organization called the Consumer Data Industry Association (CDIA) to establish industry-wide standards and lobby on regulatory matters in Washington.
These CRAs gather information about a consumer from a variety of sources, including credit-card issuers, mortgage lenders and auto finance companies; public records such as tax liens and judgments; and the individual's own payments to debtors. The data is then used to create a credit score, which indicates the relative risk a consumer poses in meeting his or her debt obligations. The scores are typically sold to lenders, who use them in making decisions about whether to extend credit; at what terms; and with whom.
In addition credit report agencyto the big four CRAs, there are tens of other specialty reporting agencies that have carved out their own niches. These range from agencies that specialize in tracking insurance consumption to those that monitor rent and utility payment histories. These companies often make up a significant percentage of the information in a person's report, although they aren't as widely used by lenders and other creditors.
A specialized agency might compile a report for an employer, for example, that contains details about an employee's driving record and criminal background. Other agencies provide information pertaining to medical or insurance issues, or they may offer specific products like background checks and tenant screening.
These agencies often sell their reports to a wide variety of third parties. Some examples include banks, credit-card issuers and other lenders; insurance companies; landlords; and utilities (like cable TV, internet and cellphone service). A CRA may also share a consumer's information with a law enforcement official upon request.
If you find incorrect information on your report, you have the right under federal law to dispute it with the CRA and the company that furnished the information. That dispute must be investigated for free and any erroneous information corrected. This is called a "free-factual" investigation and is one of the key aspects of the Fair Credit Reporting Act. There are specific procedures for disputing errors with the big four CRAs, as well as some of the other companies that compile credit reports. You can obtain a list of these companies, along with their contact information and a description of what they report, by visiting the Consumer Financial Protection Bureau's website.