Credit Reporting Industry
by John B. King
Many people find their lives are affected by the credit reporting industry. Credit reports have a big impact on your ability to get a car loan or mortgage, a credit card or even a job. Most people, however, don't know much about the credit reporting industry and how it operates. If you'd like to know more about this industry, refer to the sections below.
History of the Industry
Prior to World War II, the credit reporting industry was highly fragmented. Most towns of any significant size had one or more local credit bureaus to which a group of banks and merchants belonged and supplied information. Records were kept manually, and the amount of information available on individuals was quite limited. This presented problems for credit granters, who frequently were unable to obtain a complete picture of someone's credit history. They needed to request credit reports from many different sources and track down credit histories at previous addresses in order to obtain an accurate credit profile.
Evolution of the Industry
After the war, things changed. An increasingly large and mobile population meant that the industry had to modernize. With the advent of computer technology in the 1960s, the modern credit reporting industry began to take shape. Small credit bureaus consolidated into larger ones and merged their files; in many cities, one or two credit bureaus became dominant.
In recent years, the trend of consolidation has continued, and today there are three primary credit bureaus in the U.S.---Equifax, based in Atlanta; Trans Union, based in Chicago; and Experian, based in Orange County, California. All are now extensively computerized, able to cover the entire country and have thousands of subscribers and users nationwide.
Suppliers of Credit Information
Credit reporting companies get their information from a variety of sources, including banks and credit card companies, retail merchants, oil companies and collection agencies. They also compile "public record" information, which includes things like bankruptcy filings, suits and legal judgments. Most large credit granters furnish a monthly update to the credit bureaus that contains the current status of each account. This report includes the balance, the credit line and any delinquency information. This information is usually supplied on a computer tape, which the credit bureau uses to update its files. In return, the suppliers of credit information are entitled to request credit reports from the bureau, if and when they receive a new application for credit, and to monitor the ongoing behavior of their accounts at other creditors.
Credit Bureau Revenue Sources
Credit bureaus receive revenue mainly from the sale of individual credit reports. They also allow their subscribers to "prescreen" their database for a fee and select records that satisfy an established set of criteria, which the subscribers can then use for marketing purposes. Other sources of revenue include account monitoring services, which allow creditors to determine how their accounts are performing at other credit granters. Recently, many credit bureaus have also begun to offer fee-based products to consumers. These include things like reporting lost or stolen credit cards and identity theft protection.
Regulation of the Credit Reporting Industry
The credit reporting industry is federally regulated. The main regulators are the Federal Trade Commission (FTC) and the Federal Deposit Insurance Corporation (FDIC), and the primary law they enforce is the Fair Credit Reporting Act (FCRA). Originally passed in 1970, this law protects consumers from abuses by credit granters and reporting companies, and it specifies the steps that must be taken to correct invalid or inaccurate information on credit reports.