Four Credit Reporting Agency Myths
Before I discuss the credit reporting agency or “credit bureau” myths, I need to explain who they are. There are three major consumer credit reporting agencies in the U.S. that collect, maintain and sell consumer credit information – Equifax, Experian and TransUnion. Equifax is headquartered in Atlanta, Georgia, Experian in Dublin, Ireland (with offices in Costa Mesa, CA) and TransUnion in Chicago. Equifax is a public traded company in the U.S., Experian is publicly traded in the U.K. and TransUnion is a privately held company. I will refer to them as CRA’s because, well, everyone else does.
Here are four myths about CRA’s that might shock you:
The CRAs grant, deny or cause you to be granted or denied credit – I can guarantee you this…none of you have have applied for credit with Equifax, none of you have been denied a credit card by Experian and none of you have been denied insurance by TransUnion. The CRA’s aren’t lenders or a financial institution and can’t grant credit. Since they don’t grant credit, they can’t deny it. They compile the information used by the credit grantors as supplied by them. They do not loan money or issue credit cards. They are in the business of providing credit information. Now, their information may have lead to a bank denying you credit, but that’s where it ends.
The CRAs determine your credit ratings – Nope. The CRA’s compile credit data and report what they are given by the lenders. The don’t determine the credit ratings, the lenders do enjoy that task. The lender sends account information the CRA’s and this information is updated on the credit file. The lender provides information in the “current status” field based on the most recent payment on the account. This current status is translated into a “rating.” For example, an account that is “pays as agreed” is rated “1” on the credit report that the lenders receive.
There are standard codes for the industry and the CRA’s translate them. Here is the breakdown:
Too new to rate 0
Pays as agreed 1
30 days late (30-59 days past due) 2
60 days late (60-89 days past due) 3
90 days late (90-119 days past due) 4
120 days late (120-149 days past due) 5
Account included in Bankruptcy 7
Bad Debt, collection 9
The CRA’s give opinions to or advise lenders – CRA’s don’t give opinions about how individuals will pay their bills, or advise lenders on credit policy. Lenders determine credit policy based upon their experience with customers, economy, risk management and company policies.
The CRA’s will fix your credit or perform credit repair – The CRA’s investigate disputes and errors, contact the source of the alleged error report the result of the dispute. Depending upon the outcome they either make a correction or not. They do not fix your credit or offer to repair your credit.
John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling. He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. Follow him on Twitter here.