A few companies control almost all of the consumer credit rating industry, which covers about 75 percent of all Americans. The credit rating agencies cannot approve anyone for credit and the agencies themselves are dependent on lenders for data about consumers. They also often have wrong data on their reports.
Who are the "Big Three"
Experian, Equifax and TransUnion are the major players in the credit rating industry as of 2011. The three bureaus collect data on consumers and produce credit reports. These reports are the basis for a credit score, which helps lenders to determine the risk of lending to a particular borrower. The traditional credit score is based on a model developed by the Fair Isaac Corporation in the 1970s and 1980s called the FICO formula. The Fair Isaac Corporation licenses its formula to the agencies but does not rate consumers itself. While the three credit agencies continue to use this score, they have also developed their own scoring system, called the VantageScore. VantageScore and FICO use similar information but produce a different range of scores. Some alternatives to the "Big Three" exist, using self-reported data and data not used by the major bureaus, such as utilities and banking history. Alternative scores, however, are not as widely used as the FICO.
What do the Agencies Do?
The credit agencies are essentially a central database of financial data for anyone with a credit history. When a lender reviews an application for credit, it can query all three agencies or just one or two for information on a customer. Lenders make all credit decisions and their standards can vary widely, so it may pay to shop around.
Where Do Agencies Get Their Information?
Most of the information stored in credit agency databases comes from lenders, such as the size of a loan and payment history. Some information, such as demographic information like job and address, comes from what the applicant puts on a loan application. The agencies also scour public databases for public judgments such as tax liens, bankruptcy and foreclosure. The FICO model assigns a weight to each item based on factors like how long a person has had credit and any negative items on the report.
What if an Agency has False Information?
Eighty percent of consumer credit reports have at least one error, according to Bank Rate. If you find something wrong with your report, the credit agency that receives your complaint must investigate the claim within 30 days. All three agencies have online dispute resolution forms.
Do The Agencies Have to Let Me See My Score?
The credit rating agencies have to provide one free credit report each year to every consumer, but this does not include the FICO score. Also, the only way to get a free report is going through the AnnualCreditReport.com website. Other websites are either bogus or try to charge an extra fee.
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