Credit Reporting Agencies (CRAs) and Your Credit Rating
The U.S. Fair Credit Reporting Act of 1971 governs the credit reporting agencies, also known as credit bureaus. It was amended in 1997, and again with the Fair and Accurate Credit Transactions (FACT) Act of 2003, and includes stronger protections for consumers by increasing the responsibility of the credit bureaus to investigate consumer disputes. Read more about it here.
What is "the credit reporting agency?"
There are three big ones: Experian, Equifax, and Trans Union, all with
national databases. There is also a fourth one, called Innovis. Most credit grantors report to one or more of them. In general, the credit reporting agencies don't pass information back and forth to each other. So you actually have at least three credit
histories, not one.
There are also local credit reporting agencies and reporting agencies. They're
nowhere near as widespread as the big three. However, they are also
subject to the Fair Credit Reporting Act, so anything said here applies to them, too.
(Return to Index)
Who assigns my credit rating?
You don't have a credit rating, as such. Each credit reporting agency
collects information from banks, finance companies, department
stores, taxing authorities, landlords, and other "credit grantors"
and keeps the information in your file. The file is supposed to be
an objective record of your credit history, in essence a sorted copy
of information furnished to the credit reporting agency by companies you have
done business with on credit.
The credit history shows your name, address, Social Security number
and birth date; your open accounts, with balances and credit limits;
whether you pay them on time or not; whether any of them are or were
turned over for collection; any suits, judgments, or tax liens; and
so on. It may also include, according to {Your Credit Rating}, your
employer, position, and income; your former address and former
employer; your spouse's name, SSN, employer, and income; and whether
you rent or own your home.
The other information they keep is your credit score - a calculation so complex that there is no exact formula to print. Credit grantors who pay extra (which is 30% of them) see that score in addition to the factual information. There is a lot of emphasis on credit scoring lately. Read this for more information.
Consumers were previously prohibited from seeing their credit scores, but as of the year 2000, Fair Isaac began allowing consumers to see their scores. However, it will cost extra if you wish to see your score when you order your credit report.
(Return to Index)
How long does it take for an event (positive or negative) to show up on my credit report?
Suppose you've just paid off a large loan and you're applying for a
car loan or a mortgage. It would be nice to know that the lender
who pulls your report will see that the old loan was paid off.
However, credit grantors' contracts with credit reporting agencies may or may
not specify a timetable for grantors to report new information to
the bureau. If the credit grantors are tardy, there's not much the
credit reporting agency can or will do, since those same credit grantors are
also the customers of the credit reporting agency. Also, credit reporting agencies may
gather information directly from public records, on any schedule
they please.
The answer to this Q, as a practical matter, is that there is no time
limit for posting information. In fact, you
don't have a legal right to insist on any report being made at all.
(You can get false items corrected, but you can't legally insist on
omitted information being added.) If you've actually paid off a debt
that is still reported as unpaid, about all you can do is go through
the procedure in our document, How to Repair Your Credit.
Note that you can certainly provide the credit grantor with documents
that show the loan was repaid. I did this at the time of my mortgage
with two accounts that showed as 'open.' (Return to Index)
How does a lender decide whether to grant a loan?
When you apply for a mortgage, credit card, or other loans, the fine
print on the application gives the lender permission to check your
credit history. The lender usually requests a credit report from
one of the big three credit reporting agencies. The credit report will contain your credit score, and unfortunately, this is what most lenders consider the most. If your score is marginal, the lender may look at your actual report in addition to the score before deciding whether to grant you the credit you seek.
In general, lenders look at your total outstanding loans (e.g., your
credit card balances.) They also look at your credit limits to see
how far in debt you could go if you max out with your existing
accounts. Naturally, they are concerned with your record of
delinquencies, accounts paid satisfactorily, and anything else that
suggests how good a credit risk you might be.
Where do the credit reporting agencies get the information on your credit
report? Much of it is reported to them by lenders. Bureaus may
also copy bankruptcies, judgments, repossessions, and delinquent taxes
from public records.
See also Should I apply for as many credit cards and charge accounts as possible, even if I won't use most of them right away?, the last paragraph of Who assigns my credit rating?, and "What are 'inquiries' on my credit report" in our document Getting and reading your credit report. (Return to Index)
Should I apply for as many credit cards and charge accounts as possible, even if I won't use most of them right away?
This may create a problem. Actually, is may create two problems for you.
Many lenders look at your total credit limit on each account to
determine whether they want to give you additional credit. If you
have ten Visa cards with a $5,000 limit on each, and five have a zero
balance and the other five have $100 each, your actual debt is $500.
But some lenders may evaluate you on the basis of $50,000 of debt
because you could go out tomorrow and charge that much.
Merely applying for many accounts can also create a problem. Read "What are 'inquiries' on my credit report" in our document Getting and reading your credit report. You may also want to read our information on how applying for loans affects your credit score. (Return to Index)
I was refused a loan or credit card. What can I do?
If the lender's decision was based on a report from a credit reporting agency,
by law the lender must tell you this and give you the name and
address of the credit reporting agency. This is true even if the credit
report was only one factor in the decision.
Write to the credit reporting agency. State that you were denied credit,
insurance, or employment by (name) on (date) based on a report from
them, and you want a copy of your report. By law the credit reporting agency
must give you a free copy if you request it within 30 days after you
were turned down based on a report from that credit reporting agency. (It
doesn't matter whether you have already received other free reports.)
Also, free reports are currently available under certain circumstances at certain
intervals from some of the credit reporting agency. In some states, the bureaus are required to give you one free report a year. The new Fair and Accurate Credit Transactions (FACT) Act of 2003 will allow everyone, in every state, to get one free report from each agency each year. The FACT Act should be in effect before the end of 2004.
For a complete list of current costs, see our table for all three bureaus.
For what to do next, please see our document Getting and reading your credit report, and our document How to Repair Your Credit. (Return to Index)
One lender refused my loan, but another one said it was fine. How can this be?
There are two possible reasons. First, they may have been looking
at reports from two different credit reporting agencies. A lender where you
had a problem might have sent a report to one of those credit
bureaus but not the other. Second, lenders have different criteria.
Even when looking at the same report, they might reach different
decisions. (Return to Index)
I'm planning to apply for a loan, and I'd like to know up front that my credit is clean. Can I get a copy?
Please see our document Getting and reading your credit report, for
further information. Here is some more information on how to get your credit report by mail and online. (Return to Index)
How long do negative items stay in my report?
Read credit items and how long they stay on your report. (Return to Index)
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