What Is a Credit Bureau?
Credit Bureau is an agency that collects and researches credit information of various individuals and sells it in return of a fee to the creditors. Such information from the credit bureaus enable the creditors to take fair decisions while granting loans. The major clients of a credit bureau are banks, credit card companies, mortgage lenders and various other financing companies.
How Do Credit Bureaus Work?
Credit bureaus then, summarize the entire credit information of each individual in a comprehensive format known as the credit reports. These reports are then summarized further and represented in a three-digit numeric form named as Credit Scores.
An individual with a higher credit score is offered loans at a lower interest rate compared to the one with a lower credit score.
Regulation of Credit Bureaus
The credit bureaus are regulated by the Fair Credit Reporting Act (FCRA). It is the one that permits credit bureaus to provide credit reports only to users who have a permissible purpose listed in the law.
Although there are many smaller companies providing credit history of individuals; there are three main credit bureaus in the United States: Equifax, TransUnion, and Experian.