Credit Bureau

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A credit bureau (U.S.), or credit reference agency (UK) is a company that provides credit information on individual borrowers. This helps lenders assess credit worthiness, the ability to pay back a loan, and can affect the interest rate applied to loans. Interest rates are not the same for everyone, but instead are based on risk-based pricing, a form of price discrimination based on the different expected costs of different borrowers, as set out in their credit rating.

Credit bureaus collect and collate personal financial data on individuals and businesses, from data furnishers with which the bureaus have a relationship. Data furnishers are businesses, utilities, debt collection agencies, public institutions and the courts (i.e. public records) that a consumer or business has had a relationship or experience with. Data furnishers report the experience with the consumer or business to the credit bureau. The data provided supplied by the data furnishers as well as collected by the bureaus is then aggregated into the credit bureaus data repository or files. The resulting information is made available on request to contributing companies for the purposes of credit assessment and credit score. Given the large number of consumer borrowers, these credit scores tend to be mechanistic. In other words, the different credit bureaus collect data from a variety of sources and then apply a mathematical algorithm to assess the likelihood that an individual will repay a given debt given the frequency that other individuals in similar situations have defaulted. Most consumer welfare advocates advise individuals to review their credit reports at least once per year, in order to ensure that the reports are accurate.

Business credit reports and scoring, which report the statistic likelihood of a business paying creditors, also exist, such as the Paydex score from Dun and Bradstreet and the Experian Intelliscore.

United States In the United States, the legal term for a credit bureau under the Federal Fair Credit Reporting Act (FCRA) is consumer reporting agency.

In the United States, key credit bureau consumer protections and general rules or governing guidelines for both the credit bureaus and data furnishers are:FCRA - Federal Fair Credit Reporting Act, FACTA - The Fair and Accurate Credit Transactions Act, FCBA - Fair Credit Billing Act, and Regulation B. Two government bodies share responsibility for the oversight, and accuracy of credit bureau data. The FTC - Federal Trade Commission has oversight for the consumer credit bureaus. The OCC - Office of the Comptroller of the Currency charters, regulates, and supervises all national banks which includes with regard to credit bureau reporting.

Most Consumer based credit history information is collected and kept by the three national credit bureaus, Experian (which purchased the files and other assets of TRW), Equifax, and TransUnion. These organizations are for-profit entities and possess no governmental affiliation.

Credit Reporting Agencies (CRA's) are credit reporting entities that access the three national credit bureaus information and redistribute the information for various industries. An example is American Credco, one of the largest resellers of credit information, specializing in providing mortgage credit reporting.

Innovis is another consumer reporting agency. Starting out as ACB Services in 1970 by Associated Credit Bureaus, in 1989 it was purchased and renamed Consumers Credit Associates (CCA) and began to gain commitments from major credit grantors to contribute data. In 1997, First Data Corporation (FDC) purchased CCA and renamed this division Innovis Data Solutions, Inc. In April of 1999, CBC Companies purchased Innovis Data Services from First Data Corporation.

In the US, data furnishers generally provide data in a format agreed upon by the CDIA - Consumer Data Industry Association. The CDIA is a trade association of credit reporting agencies. The CDIA provides data furnishers with Industry Reporting Guidelines and in a standard data layout currently at METRO2.

Prbc (Pay Rent, Build Credit, Inc.) is a national alternative credit bureau. Incorporated in March of 2002, PRBC enables consumers to self-enroll and build a positive credit file by reporting their on-time payments (such as rent, utilities, cable, and phone) that are not automatically reported to the three traditional credit bureaus.

In the US, three business or commercial bureau repositories exist Dun & Bradstreet, Experian Business and Equifax Small Business Financial Exchange (SBFE)

Tort liability for business defamation In the case of Dun & Bradstreet, Inc. v. Greenmoss Builders, 472 U.S. 749 (1985) the U.S. Supreme Court held that a credit reporting agency may be liable if it was careless in reporting an impending or past bankruptcy filing of a business that is not a public figure.

United Kingdom In the United Kingdom, the three credit reference agencies are Experian, Equifax and Callcredit, which was established in 2001 and is now working closely in association with its American counterpart, TransUnion.

Most banks and other credit-granting organisations subscribe to one or more of these organisations to ensure the quality of their lending. This includes companies who sell goods or services on credit such as credit card issuers, utility companies and store card issuers. Subscribing organisations are expected to provide relevant data to maintain the common data pool.

Credit reference agencies are bound by the Data Protection Act, which requires that data relating to identifiable individuals must be accurate, relevant, held for a proper purpose and not out-of-date. Individuals have a legal right to access data held on them.

The activities of Credit Reference Agencies are governed under UK law by the Consumer Credit Act 1974.

India The establishment of Credit Information Bureau (India) Limited, India's first Credit Information Bureau, is an effort made by the Government of India and the Reserve Bank of India to improve the functionality and stability of the Indian financial system by containing NPAs while improving credit grantors' portfolio quality.

CIBIL was promoted by State Bank of India (SBI), Housing Development Finance Corporation (HDFC), Dun & Bradstreet Information Services India Private Limited (D&B) and TransUnion International Inc. (TransUnion) to provide comprehensive credit information by collecting, collating and disseminating credit information pertaining to both commercial and consumer borrowers, to a closed user group of Members.

D&B, a worldwide leader in business to business information, Credit Bureau, Risk and Data Management Solutions, is a stakeholder and has licensed its Credit Bureau Solutions for the Commercial Bureau that collects and disseminates credit information on non-individuals.

CIBIL data sharing is based on the Principle of Reciprocity, which means that only Members who have submitted all their credit data, may access Credit Information Reports from CIBIL.

In recent years, India has emerged as an increasingly industrialised and fast growing economy. Liberalization of the economy coupled with a young population has led to increased incomes and purchasing power, aspirations for a better lifestyle and expectations of higher quality products and services (a result of increasing influence of international trends and preference for international brands).

The average Indian, who had a strong aversion to credit, is now in favour of credit for convenience in shopping, for financing housing, automobiles and consumer durables and even holidays. The stigma attached to debt has declined substantially.

In India, lenders undertake the process of risk assessment independently. Credit assessment is currently based on insufficient data simply because information on total credit exposure is not maintained at a central point. This severely limits the scope of these credit risk assessment processes.

The basic Consumer CIR broadly contains:

Borrower informationNameDate of birthIdentification numbers; e.g. PAN, Passport No., Voter ID No.Address

Account InformationAccount typeOwnership indicatorSanctioned amountDate Opened / SanctionedDate of last paymentCurrent balanceDate closedAmount overdueSuit-filed statusDays past due / Asset classification

Future

See also Major global bureaus

Equifax
Experian
TransUnion
Annualcreditreport.com

National bureaus

First American Credco
Baycorp Advantage
Callcredit
Emcredit - The Emirates Credit Information Company
Credit Information Bureau (India) Limited
CRIF

External links

Political & Economic Research Council (PERC) Homepage with Credit Reporting Studies
Federal Trade Commission Governmental Page on Free Credit Reports
Federal Trade Commision Governmental Page on FCRA and consumer rights
OCC - Office of the Comptroller of the Currency
Dun and Bradstreet
"Credit-Information Reporting: Why Free Speech Is Vital to Social Accountability and Consumer Opportunity" by Daniel Klein, The Independent Review