What is a Credit Bureau? – Everything You Need to Know
Probably everyone know a few credit bureaus? Their activities are evident at first glance; however, what exactly do they mean, and what is the importance of knowing comprehensive information about them? What do you need to see about them? Let’s dive in.
Credit Bureau – Known in the US as the Credit Reporting Agency. It is an organization that collects and researches individual credit information; It then sells it to creditors for a fee. This is to enable them to make credit or lending decisions.
Bureaus work with issuers of all credit institutions; To help them make a loan decision. Their primary purpose is to ensure that creditors have that information; Which they need to make decisions in the loan process. Typical clients of the bureau are banks, card issuers, mortgage lenders, and personal financial lending companies.
However, bureaus are not responsible for making decisions; Should they give credit or not. They only collect information about an individual’s credit score; This information is then provided to the special institutions. Consumers can also be consumers of bureaus; They receive their history information for precisely the same service.
However, where do bureaus get their information from? Credit bureaus typically receive information from data providers. They can be traders, debtors, creditors, debt collection agencies, offices with public records. Most credit bureaus focus on credit reports; however, some also have complete information; These include cell phone billing history; Rent, utility bills. After that, credit bureaus typically use a range of methodologies; To calculate a person’s credit scores based on the credit history received.
FICO scores are the most common credit score in the US. There are 19 frequently used FICO points. Each calculates differently for different types of customers. This allows lenders to choose the style that best suits their needs.
Bureaus then add credit information to the information they collected; Issue a comprehensive report that provides information to issuers. This helps them determine approval and appropriate interest rates for borrowers. An individual with a higher credit score is likely to have a lower interest rate on loan.
There are currently several bureaus operating in the US. Three of them are Experian, Equifax, and TransUnion. In addition to using FICO scores, these bureaus have teamed up to create a VantageScore report.
Both points calculate in the range of 300 to 850. VantageScore initially used the 501 to 990 degree. For some industries, the FICO score is rated on a 250 to 900. However, VantageScore and FICO assess the importance of separate categories differently. Consequently, they generally differ in their scores. A good FICO score is considered in the range of 670 to 719. And the excellent VantageScore ranges from 661 to 780.
Another critical difference between scores is the sources. VantageScores generates a single point that can be matched to the score of each bureau; Based on information from all three bureaus. At the same time, FICO uses data from only one bureau for its account.
While bureaus do not make lending decisions, they are mighty financial institutions. The information provided in their reports can significantly impact an individual’s financial future. The Fair Credit Reporting Act regulates bureaus and their use and interpretation of user data. It is primarily designed to protect consumers from fraudulent information in their score reports.
In 2003, FACTA updated the Reporting Act; To enable users to get one free report every 12 months from bureaus. It also gave them the right to know how this score was calculated.
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