Credit bureaus, in one shape or another, have dictated the lives of both individuals and businesses for more than a century. While their role in society has changed over the years, credit bureaus remain active, influencing the buying power of everyone, no matter the economic class.
History
In the 1800s, credit bureaus existed in a smaller form in towns and communities across the nation. At the time, these bureaus listed the names of people who had proven to be unworthy of credit due to failure to pay their bills. Credit lists became more detailed after World War I, when items such as employment activity and public records were added to the information kept about consumers. By the time the 1900s rolled around, the Associated Credit Bureaus was formed by the many smaller companies which existed at the time.
Function
Credit bureaus provide information to creditors regarding consumers' past credit history. A variety of information is listed on a credit report, including contact information, employment, lines of credit, collection accounts, judgments, bankruptcies and requests by businesses to view the credit file. All of this information combines to form a collective credit score, which is a snapshot of an individual's credit rating.
Significance
Without credit bureaus, lenders and creditors would have no way of checking background information on a consumer's financial life. Credit bureaus enable these institutions to make the most educated decision possible to determine which applicants are granted credit, lowering the risk the lender carries. Credit bureaus are important to consumers for the acquisition of new credit lines, and the monitoring of credit files can help consumers detect identity theft.
Types
In the United States, three main credit bureaus are responsible for maintaining credit files on consumers. Equifax, Experian and TransUnion are the companies that lenders use to pull credit files and credit scores. Information may be different from one company to the next, as not all creditors report to all three bureaus, and even those who do may report information slightly differently from one bureau to the next.
Misconceptions
Many people do not take the time to monitor their credit reports, assuming anything that is displayed is accurate. Many times, creditors and collection agencies report information incorrectly. Without being alerted by the consumer, credit bureaus have no way of knowing whether the information is truly accurate or not. The federal government provides protection to consumers, requiring that credit bureaus only report accurate information.
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