How Do Credit Bureaus Work?

TransUnion, Equifax, and Experian are three major consumer credit bureaus that collect and store information about consumers to create credit reports.

According to Experian, creditors such as banks and credit card companies, use these bureaus’ credit reports to help them determine the risk involved in lending money to consumers.

The bureaus rely on the information provided to them each month by data furnishers —the same financial institutions that a consumer regularly interacts with—, which includes current balances and whether a bill was paid on time.

Credit bureaus also collect public records information, such as bankruptcy filings, and add these to consumers’ credit reports, Experian says. Some types of public records, like tax liens and civil judgments, are no longer collected.

Creditors, on the other hand, use credit reports and scores to help determine whether to approve or deny an application and the interest rates on loans and credit cards they approve, Experian adds.

The Fair Credit Reporting Act

The Fair Credit Reporting Act (FRCA) regulates all credit bureaus since 1970. Experian shared some of its significant rules:

• Consumers can request a free copy of their credit report from each credit bureau every 12 months.
• Negative information must be removed from credit reports after seven years.
• A person or company must have a “permissible purpose” to request a copy of a consumer’s credit report.
• Consumers have the right to dispute information in their credit reports.

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