How Do the Credit Bureaus Make Money?

Equifax, TransUnion, and Experian – collectively they are often referred to as “The Big 3.” The Big 3, also known as the credit reporting agencies (CRAs), are the companies who create your credit reports. The CRAs are not government agencies and they do not work together, contrary to what many people believe. Instead, they are competitors and for-profit companies that earn money by collecting and reselling your information to be used in a variety of products and services.

Collecting Information

Essentially the credit reporting agencies make money by knowing a lot about you and everyone else. In fact, each of the CRAs maintains well over 200 million individual consumer credit files. And, many of their products and services are built off of their credit file database.

It is also worth noting that lenders, collection agencies, nor anyone else is legally required to report information about you to the CRAs. Credit reporting is completely voluntary. Furthermore, the CRAs generally do not pay their data furnishers (the companies that report information to the credit bureaus) to provide them with information about how you are managing your accounts.

Credit Reports

One of the primary ways the credit reporting agencies make money is by selling credit reports to lenders and others that are willing to purchase the information. The Fair Credit Reporting Act allows the CRAs to sell your information to any party that has a “permissible purpose” to access your credit reports.

The CRAs primarily sell credit reports to help businesses make decisions. Lenders, for example, rely upon credit information to help them reduce the risk when loaning money. However, lenders are certainly not the only ones willing to pay the CRAs for credit information. Credit report are also commonly purchased by;

Employers – You must give your written permission for an employer to obtain a copy of your credit report, but that consent is commonly requested whenever you apply for a new job or new position.
Insurance Companies – Insurance companies rely on your credit in order to determine the likelihood that you will file a claim – information they need in order to decide whether or not to issue you a policy and, if so, at what premium.
Current Creditors – Even the creditors with whom you have an existing relationship may legally purchase your credit reports if they wish to do so. In fact, many credit card issuers will check your credit every month as part of their ongoing account maintenance processes.
Utility and Mobile Phone Providers – Utility and mobile phone companies pay the CRAs for credit reports as well. These companies routinely rely on credit information to determine whether or not to charge you a deposit and, in some cases, whether or not to approve your application for service.
You – You are certainly allowed to review your own credit with each of the 3 major CRAs. You are entitled to a free credit report every 12 months from AnnualCreditReport.com, but the CRAs may legally sell you credit reports and related services as well.

Marketing Lists

Another way the credit reporting agencies earn money is by selling information about you to companies, especially credit card issuers, who in turn use that data to solicit you for new accounts. This information is sold in the form of mailing lists and while the purchaser of the information may not see your actual credit report, they will have a pretty good idea what is on it due to the list of selection criteria they’ll provide to the CRAs. As long as the company uses the data they purchase to send out a “firm offer of credit or insurance” then it is completely legal for the CRAs to sell your information in this manner.