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The Role of Consumer Credit Bureaus
Credit bureaus collect information from lenders about their
customers' payment histories. Bureaus do not evaluate your application
for credit; nor do they make lending decisions.
Consumer credit bureaus serve as central storehouses--or
libraries--of credit repayment information. They collect the information
from credit grantors such as banks, savings and loans, credit unions,
finance companies, and retailers.
Creditors then buy back this information from the
bureaus to help them make lending decisions.
Before the days of the computer, merchants used to own their
own credit bureaus. They collected varying types of information on a local
basis only. They stored the data on 3-by-5-inch cards in file cabinets.
As a result, obtaining credit was a much slower and inconvenient
process. When consumers moved from one area to another, they had to establish
a new credit history.
Computers Revolutionize Credit Reporting
In the 1960s, credit bureaus introduced the central file, which allowed
lenders to pool credit information. Computerized, online credit reporting
systems soon followed.
Today there are three major nationwide
credit bureaus:
Clearing Up Some Myths
There are some things credit bureaus do not do, however. Here are a few:
- A credit bureau does not evaluate
your application for credit or a loan.
Lenders use the identifying information on your application--your name
(including generation, such as Jr., Sr., III), address, year of birth,
and Social Security number--to ask for your credit history from the
credit bureau's database.
Once the bureau supplies the credit report, its job is complete. The
bureau does not see your application for credit; nor does it evaluate
your application.
- A credit bureau does not decide
whether you should be given a loan.
Only credit grantors make lending decisions. A bureau's business is
credit reporting. It collects, stores, and reports the relevant identifying
and credit information of credit-active Americans. Using this information,
credit grantors alone decide what standards you must meet to be granted
credit.
- A credit bureau does not know the
reasons why you are given or denied credit. The decision to give or
deny credit rests with the credit grantor.
The credit bureau does not track the decision a credit grantor makes
after ordering a credit report, favorable or not.
- A credit bureau does not collect
information unrelated to your credit repayment performance.
Credit reports, as required by federal law, contain consumer identification
(name, address, year of birth, Social Security number, spouse initial);
information about loans, charge accounts and credit cards; and public
record information limited to bankruptcies, tax liens and judgments.
Credit reports do not contain information about race, religious preference,
personal assets, medical history, personal background, political preference,
personal lifestyle, or criminal record.
- A credit bureau does not allow
everyone to see your credit report.
Federal law restricts who may see a copy of your credit report. Before
it allows a business to access credit information, credit bureaus require
proof of a permissible purpose under federal law. For example, an insurance
underwriter may check your credit history before extending you an auto
or life insurance policy. A potential employer must get your permission
(signature) before accessing your credit history.
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