Facts You Might Not Know About the Credit Bureaus

You never agreed to it, you never gave your permission, you might not have even been aware that it was occurring, but information about you and how you manage your financial obligations is being collected behind the scenes. This information is compiled into documents known as credit reports. Lenders, insurance companies, and many others will consult your credit reports (and often your credit scores) to determine whether they wish to do business with you.

The companies that collect and compile all this information about you are known as credit reporting agencies or, more commonly, credit bureaus. In the United States, there are 3 major credit bureaus – Equifax, TransUnion, and Experian. Although these companies play a very important role in the life of every consumer, the truth is that there is a lot of misinformation regarding what the credit bureaus are and exactly what they do.

Here are 5 facts that you might not know about the credit bureaus, but you probably should. There is a very real chance that the credit bureaus may not be what you think they are.

1. The Credit Bureaus Exist to Service Creditors

You as a consumer are not the credit bureaus’ primary focus. Instead, the credit bureaus cater primarily to and make money by selling products to creditors. Without the credit bureaus, it would be easy for a consumer to take out a loan, not pay it back as promised, and simply move onto another unsuspecting creditor to repeat the process. However, by collecting information from a network of creditors (aka data furnishers) the credit bureaus are able to create credit reports which serve to help lenders reduce their risk and ultimately become more profitable.

2. The Credit Bureaus Are Not Government Agencies

Contrary to popular myth, the credit bureaus are not associated with the government in any way. The bureaus are certainly regulated by the government at both a federal and state level; however, they are publicly owned, for-profit companies. Equifax and TransUnion are both public in the states and Experian is public in the UK.

3. The Credit Bureaus Are Competitors

Although all 3 major credit bureaus do essentially the same things, they do not work together. They are competitors rather than partners. Except under a handful of special circumstances (generally required by law), the credit bureaus do not share data with each other. This is one of the primary reasons why your 3 credit reports likely contain different information. It also underscores the importance of routinely checking not just 1 but all 3 of your credit reports for errors.

4. The Credit Bureaus Do Not Create Your FICO Credit Scores

Although there are hundreds of different credit scores available commercially, most lenders currently prefer to purchase some version of your FICO credit score when reviewing your application for financing or service. However, your FICO scores are not actually created by the credit bureaus. Instead the 3 major credit bureaus each have a licensing agreement with FICO which allows them to sell your FICO score directly to lenders. Each bureau must pay FICO a royalty for the use of their models to calculate your scores off their data.

5. The Credit Bureaus Do Not Make Lending Decisions

Although the credit bureaus collect and maintain a staggering amount of information about you, they do not actually make lending decisions. Instead, the credit bureaus sell your credit information to companies who have permissible purpose to request it. It is ultimately the lender, service provider, or insurance company that decides whether or not to approve your application. Your credit reports and scores may certainly influence this decision, but the credit bureaus only sell your data.