How Credit Bureaus Report Consumer Credit Scores

By on | General Debt & Loan Consolidation Information.

In today’s consumer credit driven world, a good score affects many things for individuals, including their ability to avail loans and credit cards. A good credit rating also determines the type of interest rates and insurance premiums consumers are able to obtain from companies. Credit ratings are provided by three major credit bureaus in the U.S., Equifax, Experian and TransUnion. Their job is to collect and compile every individual’s information for the purpose of establishing credit scores. The process also involves creditors, as they are responsible for reporting information to the credit bureau when inquiries are made into a person’s credit. There are several things that can qualify as “inquiries,” which affect an individual’s credit rating, including the following:

Applications for new credit cards Loan applications: mortgage loans, car loans, personal loans etc. Late bills payments Credit checks performed when individuals rent property or get employed

Along with the data gathered by creditors, the files held by credit bureaus also incorporate other pertinent information, such as an individual’s employment history, previous addresses/phone numbers, bankruptcy filings, evictions etc. The information contained in a consumer’s credit report usually remains on file for a total of seven years before credit bureaus remove it. When it comes to deciding whether or not to grant a loan, most lenders tend to take an average of the credit ratings provided by all three credit bureaus.

Unfortunately, not everyone is satisfied with their credit rating, as life can be extremely difficult for those who suffer from bad credit. Because they are labeled as bad credit borrowers, many lenders are often reluctant to work with them. Consumers with bad credit are also required to pay significantly higher interest rates due to the greater risk involved for the financial lending institution. However, the good news is that consumers can improve their credit rating as long as they learn how to work with credit bureaus. For example, many individuals may be unaware of the fact that when denied for credit, they are legally entitled to a free copy of their credit report, as mandated by U.S. legislation.

When credit is denied, consumers should also receive a notification letter in the mail. The letter usually contains the name of the credit bureau responsible for providing the rating in response to their credit application. This information also informs consumers which credit bureau they need to work with for the purpose of restoring their credit rating. By law, there are several pieces of key information that consumers are required to provide when requesting a copy of their credit report: 1) full name, 2) current address, and 3) social security number.

Once individuals receive their credit report, they need to review the contents thoroughly for any errors and omissions. While credit bureaus do their best to provide exact and up to date information, they are no exception to human error. This is where the Fair Credit Reporting Act comes into play. The purpose of this act is to ensure that credit reporting agencies provide accurate information on consumer credit histories. If consumers do find faulty items within their credit report, and are able to prove the inaccuracies, the Fair Credit Reporting Act can be of great help. This is because credit bureaus are required to fix the errors in order to ensure the right information is included for future credit reports which are requested.

Regardless of whether they are applying for any type of financing, it’s extremely important for individuals to check their credit report every year. The information can be obtained online in a quick and convenient manner, and the best part is, it’s free for consumers to obtain once a year. Not only are consumers able to ensure accuracy, but they are also made aware of any discrepancies which may exist. This allows them to take the necessary steps to rectify their credit rating before it’s too late.