What are Credit Reporting Agencies?

If you are trying to repair your credit, then you definitely need to understand the role of credit reporting agencies. Many people think that they area non-profit or government-run agency, but neither one of these assumptions are correct. In fact, a credit reporting agency - sometimes known as a credit bureau - is a for profit organization whose primary clients are the lending institutions.

Does that surprise you?

Here's how it works:

When a lender wants to find out about a person's credit, they contact one of the three credit reporting agencies.
They pay a fee to the credit bureau for this information, and that's how the credit reporting agencies make their money.

For example, if you were applying for an automobile loan, then the potential lender would first contact one of the credit bureaus and take a look at your credit report. If there were bad marks on it, the lender may not lend you the money for your new car.

The credit bureau is responsible for collecting data about you, and then creating a report that will be sent to everyone who asks for it. (And will pay for it.) In the report, they will include personal information about you, your employment history, any tax liens, judgments and bankruptcies. They will state whether you own your house or rent it, how much money you owe on it, your monthly payments, and how long you've lived there. They will disclose your social security number and your yearly salary. In addition, they will show how much money you owe, to whom, and whether or not you have made your payments on time or if you have been late with them. A person can take a look at this report, and get a feel - based on your past experience - about whether or not you would make a good credit risk.

Where Does the Information Come From? The Lenders!

So, where does the credit bureau get the information about you to put on your credit report? From the lenders, who are also their clients. The lenders don't get paid for providing them this information; they simply do it because they expect other lenders to do the same if they have a client who doesn't pay on time. Another way of looking at it is that the lenders are the people who supply the information about the borrowers, and the credit reporting agencies simply collect and manage that information.

If the lenders are the credit reporting agencies clients, where do you fit into all of this? As a consumer, you do have rights, but you should know that your needs will always come after the needs of the lenders. For example, if you receive a copy of your credit report and find that there is erroneous information on it, you have the right to send in a letter requesting the bad information to be removed from your report. The agency is required by law to do this, but they will always seek the lender's side of the story first.

Now that you understand what credit reporting agencies do, you should have a better idea of how to work with them to repair your credit report.

Summary

Credit reporting agencies are for-profit companies
Credit reporting agencies work for lenders, not you.
Lenders provide information to credit reporting agencies about you
Another way of looking at the relationship is that credit reporting agencies collect and organize information about clients for lenders

After perusing the basics on credit repair, do you think you might need some help repairing your credit? Before you get started, it's important that you learn about credit repair companies and the potential risks in using one in All About Credit Repair Scams (I mean Companies).