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Credit Reporting Agencies and Your Credit Rating

Last Updated: June 2, 2010

Credit reporting agencies, also known as credit bureaus, are institutions that collect all the information regarding your credit history to create an in-depth credit report which is evaluated and given a three digit credit score. Years ago, consumers were in the dark as to why they were denied that mortgage loan or that low interest credit card.

In 1971, the Fair Credit Reporting Act was passed which gave consumers access to their credit reports and credit scores from ecah of the three national credit reporting agancies: Experian, Equifax, and TransUnion. It was amended in 1997, and again with the Fair and Accurate Credit Transactions (FACT) Act of 2003, which provided stronger protections for consumers by increasing the responsibility of the credit bureaus to investigate consumer disputes.

• What is a Credit Reporting Agency?
  
• Who Assigns My Credit Rating?
  
• How Long Does it Take For a Positive or Negative Item to Show Up on My Credit Report?
  
• How Does a Lender Decide Whether or Not To Appove a Loan?
  
• Should I Apply For as Many Credit Cards as Possible - Even If I Won't Use Most of Them?
  
• I Was Denied a Loan or Credit Card. What Can I Do?
  
• One Lender Denied My Loan, But Another One Said it Was Fine. How Can This Be?
  
• I'm planning to Apply For a Loan, and I'd Like to See My Credit Report. Can I Get a Copy?
  
• How Long do Negative Items Stay in On My Report?
  

There are three big ones: Experian, Equifax, and TransUnion, 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.

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, 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. 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.

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 question, 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.'

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 "What are inquiries on my credit report" in our document "Getting and Reading Your Credit Report".

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.

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".

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.

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.

Read "Credit Items and How Long They Stay on Your Report".