Consumer Credit Reporting Agencies - An Overview

Reader Question: What is a consumer credit reporting agency and what should I know about them?

When people talk about the credit reporting agencies, they are usually referring to the three companies that collect credit information on U.S. consumers and generate reports based on that data. There are three of these companies -- Equifax, Experian and TransUnion.

Many people believe that the consumer credit reporting agencies are government entities, but this is not the case. They are privately held companies. That's right ... private companies have the right to maintain financial data on all U.S. citizens. I don't agree with the concept at all, but that's not the subject of this Q&A session.

As a consumer, the important thing to remember about the credit reporting agencies is that they produce a report that summarizes your financial history. Commonly referred to as credit reports, these documents are used by mortgage lenders and other creditors whenever you apply for financing. The lender will request the credit reports from the three agencies that maintain them, and they will review the information to see what kind of risk you may pose.

Your credit reports are put through a scoring process to produce your actual credit scores. When you apply for a mortgage loan, the lender will use your score as part of their evaluation process. If you have a good / high score, you'll have a better chance of getting a loan (and a good interest rate on the loan). The opposite is true for a low score. But this all starts with the consumer credit reporting agencies because they provide the data that is used to generate the score.

Dealing With Credit Reporting Companies

There are certain occasions where you might have to contact one or more of the credit reporting companies. For one thing, you would go through them when requesting copies of your credit reports (you have three, one for each company). And if you find errors on any of your reports, you will have to dispute the error through the consumer credit reporting agency that produced the erroneous document.

And this is where you will learn a hard lesson about these agencies. You are not their customer. The lender who pays these agencies for credit information about you is their customer. But you are not. I say this so you can understand the relationship at work, if you ever have to contact a consumer credit agency about correcting errors. In other words, don't expect great customer service when you contact these companies.

But at the same time, there are laws that govern these companies. Specifically, the Fair Credit Reporting Act (FCRA) outlines what these agencies can and cannot do. Among other things, this law limits the period of time that negative information can stay on your credit report (7 - 10 years in most cases). The FCRA also requires the credit reporting agencies to investigate disputes in a timely manner, and to remove any negative information that a consumer disputes if that information cannot be verified within 30 days.

Related questions:

• How do I dispute an error in my credit report?
• What does three credit reporting mean?

I hope this gives you a better understanding of how these consumer reporting agencies work and how they can affect your life. You can find a lot more information about this subject by reading through this blog. I listed a couple articles above that are closely related, but there are many more on the blog. The reporting category will give you a list of all Q&A sessions related to this subject.