Roles of a Credit Bureau

A credit bureau is a credit reporting agency, charged with collecting and reporting credit data. In the United States, there are three credit bureaus--Equifax, Experian and TransUnion. These agencies have a variety of roles, all centering on the monitoring of credit.

Credit Scores

One of the primary roles of a credit bureau is to issue credit scores for individuals. There are two credit score types: custom and generic scores. Where generic scores are used by a variety of businesses and lenders, custom scores are customized to a specific business's needs. Prior to the development of credit scores, a lender had to review an applicant's lending history to decide whether or not to issue her credit. This process, according to Experian, was both time consuming and subject to human error. Today, credit bureaus issue credit scores that allow lenders, and other businesses, to make more objective decisions with a quantifiable number that can be compared against other scores.

Lending History Central Repository

Related to the issuance of credit scores, another role of credit bureaus is to act as a lending history repository. Prior to credit bureaus, an individual's lending history was kept only by each individual lender. If an organization wanted to inquire about an individual's lending past, it would have to inquire with each and every past account. Of course, if an individual was not upfront about his credit past, lenders may not have known know about accounts that weren't paid as agreed upon. Today, organizations report their account information to the credit bureaus, and when organizations seek information, they receive all reported information, not just information the applicant provided.

Identity Theft and Fraud Prevention

Because of the centralized nature of credit information within the credit bureaus, another role of credit bureaus is the prevention of identity theft and fraud. Consumers now have access to all of the information reported on credit accounts that are open, just as potential lenders do. This allows them to monitor their personal credit activity and rectify fraud, identity theft and mistakes. Prior to credit bureaus, individuals often didn't learn about identity theft and fraud until the negative ramifications, such as late payment notices, began to show up.