Home
| Work & Business
| Credit & Debt
| Credit Reporting
| What Is a Credit Reporting Agency?
What Is a Credit Reporting Agency?
by Dave Guilford
-
Overview
Credit reporting agencies are clearinghouses for information on individual consumers' loan repayment histories. The three largest credit reporting agencies in the United States are TransUnion, Equifax and Experian (formerly TRW). Credit reporting agencies also offer credit scoring, a quantitative analysis of a consumer's creditworthiness. A consumer's credit score provides an overall snapshot of the consumer's outstanding debts and repayment history, and it is usually the first thing a potential lender investigates. Credit scores are also used to determine the interest rate a consumer will be charged on a loan. The higher the credit score, the more credit worthy a consumer is considered.
What Is a Credit Reporting Agency?
-
History
The oldest credit reporting agency in the United States is Equifax (NYSE:EFX). It was founded in 1899. Equifax is based in Atlanta, Georgia. It has offices in 14 countries. Next on the scene was TransUnion, a private company founded in 1968 and based in Chicago, Illinois. Finally, Experian (LSE:EXPN) was founded in 1980 in Nottingham, England. It was called CCN Systems. Experian acquired TRW Information Services in 1996. Currently the largest of the three credit reporting agencies, Experian's corporate headquarters is located in Dublin, Ireland.
-
Function
The function of a credit reporting agency is to collect commercial consumer data from merchant sources, compile the data, and then report the data upon request to member merchants and financial institutions. Legally, the three credit reporting agencies must provide a free copy of a consumer's credit report to the consumer annually upon request. The credit reporting agencies also have a legal obligation to provide a forum for disputing erroneous information and are required to remove erroneous information upon satisfactory proof of the error.
-
Effects
Credit reporting agencies and the reports they provide to financial institutions are the single largest factor considered when a lender decides to give a consumer a loan and to determine the interest rate of said loan. Credit reporting agencies have a major effect on a consumer's ability to borrow money. Errors on a consumer's credit report can cause major problems for the consumer. It goes without saying that correctly reported delinquent accounts and write offs will make further borrowing very difficult.
-
Considerations
Managing one's credit report has become a necessary step in responsible financial planning. Consumers are entitled to a free credit report annually, and they should check their credit report at least that often. Recently, a proliferation of credit service Websites offers consumers the ability to check their credit reports and credit scores as often as every 24 hours. Many offer services that will instantly alert consumers to changes in their credit reports, helping to control identity theft and credit reporting errors.
-
Warning
Many unethical credit repair companies will offer to improve a consumer's credit rating with the credit reporting agencies. The reality is that the only way to improve your credit rating (aside from clearing up any errors on your report) is to pay your bills on time and use credit responsibly. Firms that claim to raise your credit score instantly often commit fraud to accomplish this, and their methods are not successful over the long term.
