Credit Bureau

A credit bureau is an organization that aggregates the details about an individual’s credit history and compiles them into a comprehensive credit report. It then sells these credit reports to creditors for a specified fee, allowing them to make lending decisions.

The credit bureau records contain a detailed history of an individual’s credit status and past credit activities. The individuals are also given a score based on their repayment activities. Creditors use these reports to determine if a loan application is high-risk and if the individuals are likely to default.

• A credit bureau is an organization that tracks and maintains an individual’s current credit status and past credit activities. These agencies then prepare a comprehensive report about the borrower’s credit history and sell it to creditors in exchange for a specified fee.
• The creditors use these credit reports to make well-informed lending decisions. These reports are valuable tools that help creditors identify and reject loan applications with a higher potential to default.
• These bureaus also provide a three-digit credit score to individuals based on their repayment activities. These scores determine an individual’s creditworthiness. A higher credit score indicates better financial performance.

A credit bureau is an entity that tracks and maintains an individual’s present credit scenario and credit history. The bureau compiles all this information into a comprehensive report and sells it to creditors who rely on these reports for making informed lending decisions. The credit bureau records comprise an individual’s credit and repayment history. Furthermore, the bureaus give a three-digit score to an individual based on their previous credit records. A higher score indicates an individual’s higher creditworthiness.

The credit bureau systems are instrumental in weeding out high-risk loan applications with a higher possibility of defaulting. The creditors review these credit reports and scores to make well-informed lending decisions. There are several instances where employers go through an applicant’s credit reports which influence their hiring decisions. Additionally, insurers often request an individual’s credit reports to ascertain their financial performance.

The top three credit bureau agencies are as follows:

#1 - Transunion

This agency was founded in the 1960s. It is based in Chicago, Illinois. However, it has regional offices worldwide, including countries like Brazil, the United Kingdom, Canada, South Africa, Colombia, Hong Kong, and India. It has over 10,000 employees and provides various services like credit lock and identity protection. While some of their services are free, most others require payment.

#2 - Equifax

Equifax Inc. is one of the most popular credit bureau agencies in the United States. Cator and Guy Woolford founded it in 1899 as a Retail Credit Company. It is headquartered in Atlanta, in the state of Georgia, and has over 14,000 employees working in over 24 countries across the globe. This bureau is spread across America, Asia Pacific, and Europe. It has almost $5 billion in annual revenue and is listed under the New York Stock Exchange (NYSE).

#3 - Experian

This agency has its domestic headquarters in Costa Mesa, in the state of California in the United States, and its corporate headquarters in Dublin, Ireland. It originated in 1968 as the Credit Data Corporation. However, in 1966, it was officially recognized as Experian. It operates in over 37 countries and has offices in the United Kingdom, the United States, and Brazil. Experian has more than 17,000 workers and $5.18 billion in annual revenue. It trades under the London Stock Exchange (LSE).

Let us understand the concept with the following examples:

Example #1

Suppose Richard Rose wanted to start a business for which he requires $10 million as capital. He tried to loan some of the total capital amounts and approached some creditors. The creditors contacted some credit bureaus, receiving comprehensive reports of Rose’s current credit status and past credit activities. The bureaus covered his credit activities from various sources, including microfinance institutions, credit card companies, and retailers. His reports showed that he had a high credit score of over 750. As a result, the creditors decided to lend him the money.

Example #2

The three most used credit bureaus, Equifax, Experian, and Transunion, decided to remove medical debts under $500 from the consumer credit reports. They announced this move on April 14, 2023, which led to a potential boost in several consumers’ credit scores. Almost 70 percent of medical debts have been removed from consumer credit reports. This decision will make it easier for consumers to acquire a loan, secure reasonable interest rates or even rent an apartment.

The differences are as follows:

• Credit Bureau: These bureaus search for and maintain a record of an individual’s credit history and current credit status. They sell it to the lenders who rely on these reports to make credit decisions. These bureaus track the individual’s credit activities and assign them a score indicating their creditworthiness. The creditors analyze the individual’s repayment activities and then decide whether they are willing to lend money. These bureaus help creditors eliminate high-risk and ineligible loan applications.
• Credit rating agencies: The credit rating agency assign ratings or scores to various individuals and entities as debtors. The scores are based on a wide range of financial yardsticks and factors. They provide ratings in alphabets like “AAA” or “CCC,” and so on. They are also categorized into investment grade and non-investment grades. These ratings help a creditor or an investor decide if a company is worth investing in. They help in analyzing the entity’s risk-reward potential. These ratings are instrumental in weeding out the high-risk and non-profitable investment alternatives.

This article has been a guide to what is Credit Bureau. Here, we explain the top 3 credit bureaus, examples, and a comparison with credit rating agency. You may also find some useful articles here -

• Secured Credit Card
• Good Credit
• Fair Credit Reporting Act (FCRA)