Commonly known as credit bureaus, a number of companies collect and disseminate information about consumer credit history. These agencies exist chiefly to provide creditors with uniform and comprehensive information about individuals with whom they may enter into credit agreements. The largest U.S. consumer credit bureaus are Experian (formerly TRW), Equifax, and Trans Union. These for-profit companies obtain periodic payment history information from creditors such as banks, leasing companies, and credit card issuers, and release current summaries of this information to qualified inquirers.
In addition to payment histories and balance information on every loan and credit account held by a consumer, credit reports may also contain details such as names of employers, previous addresses, previous or alternate names the consumer goes by, a history of bounced checks, a history of companies that have checked the consumer's credit, and any evictions or bankruptcies. Most of this information remains on a report for 7 years, except in the case of bankruptcy, which is reported for 10 years.
Credit reports are used primarily by businesses that are considering extending credit—whether in the form of a loan, credit card, or other means—to consumer applicants. Many creditors establish their own criteria for what is considered an acceptable credit history. A common criterion is a credit score based on variables such as the length of time a candidate has held credit accounts, missed-payment or collections history, length of time at one address, and the proportion of the consumer's existing credit already in use. The score is taken as an indication of the applicant's likelihood of defaulting if the new credit is issued.
In addition, consumer credit reports are purchased for marketing and other purposes, some of which are considered controversial. Marketers may use credit information to build mailing lists of potential customers who meet certain criteria. Prospective employers and landlords may request the reports to evaluate candidates' financial stability.
Widespread consumer concerns over the confidentiality and accuracy of credit information sparked tighter controls over credit bureaus in the mid-1990s. Credit reporting agencies are governed under the Fair Credit Reporting Act (FCRA), as amended in 1996, and other laws. The Federal Trade Commission and state attorneys general oversee the enforcement of credit reporting laws. The 1996 FCRA amendments restricted unauthorized inquiries into consumer credit and made it easier for consumers to remove themselves from marketers' lists. Included in these restrictions were unauthorized inquiries by employers. Worries about accuracy were addressed by new requirements that credit bureaus and creditors must respond within 30 days to consumer disputes over the accuracy of data. This period is enforced unless additional information from the consumer becomes available, in which case an extension may be granted. If creditors fail to validate disputed items within the allotted time, the information must be deleted by the bureau. Further, it is unlawful for a creditor to knowingly allow incorrect information to be placed on a credit report.
In most other cases, the reporting creditor is the only party authorized to change information once it has been listed on a credit report. If the creditor asserts that something is accurate and the consumer disagrees, consumers are able to submit a short statement or explanation to be listed in the report as well.
If a consumer has been denied credit, employment, or insurance based on the contents of his or her report, by law the reporting agency must provide the consumer a free copy of the report. Consumers typically must pay a small fee ($8 as of 1999) to receive a copy of their own report, although there are a few other exceptions, such as for being unemployed or on welfare.
Consumer anxiety regarding having an unfavorable credit report has spawned a cottage industry of credit report clean-up scams. These services advertise the ability to repair bad credit for a fee so that consumers will be more likely to qualify for loans, credit cards, and so on. Virtually all of such services are either ineffectual, illegal, or both.
SEE ALSO : Commercial Credit Reporting
Federal Trade Commission. "The Fair Credit Reporting Act Amendment." Washington, n.d. Available from www.ftc.gov/bcp/conline/edcams/fcra/index.html .
National Foundation for Consumer Credit. "The National Foundation for Consumer Credit." Silver Spring, MD, 1998. Available from www.nfcc.org .