How Does a Credit Bureau Work?

Although all people are created equal, a person's credit rating can quickly determine how worthy they are in the eyes of lenders. If your credit rating is not particularly impressive, you can have a difficult time acquiring a loan, and when you do, the interest rate can be higher than desired. Credit bureaus are the organizations responsible for acquiring credit information, which is then available for a variety of uses.

When you apply for a credit card, loan or another form of credit, you are required to provide personal information, including your name, address, employer and annual income. If the company approves your application and this is your first line of credit, then the process of submitting information to the credit bureaus begins.

Credit card companies and other lenders employ credit reporting agencies, or credit bureaus. When you apply for credit, lenders want to know what level of risk they would take by loaning money to you. In order to do this, the company must send in all of your personal information which you supplied on your application. The credit bureau is then able to give the company information about you based on how you handled credit previously.

Credit bureaus are kept updated on all of your transactions, as well as the status of your payments and your payment history. Credit bureaus are also able to access your public records, such as court records, as part of their portfolio that they keep on each individual credit card consumer. This comes into play when you apply for subsequent credit, since that is when your prior credit payment history and transactions come into play.

The three largest national credit bureaus are Equifax, Experian and TransUnion. Most large credit-based companies give your information to all three credit bureaus. As a consumer, you are allowed to receive one free credit report per year. If you want a second copy of your credit report within a year, you will usually need to pay a fee.

On your credit report, you can see all the information that credit bureau has tracked. Your credit report also shows your credit score. The credit bureaus use your past payment history, amounts owed, length of credit history, new credit and types of credit used to determine your credit score, dubbed your FICO score. Scores range from 300 to 900 with most people falling in the 600 to 800 range. If you don't pay a creditor, your score drops. On the other hand, if you pay your creditors regularly and promptly, you can expect your credit score to rise. It's important to keep your payments timely and your credit score high in order to get large loans, such as a mortgage loan, in the future.