When you purchase an item on credit, take out a loan or get a mortgage, the credit card company or bank that lent the money is familiar with your payment terms and history. That make sense, but there is also another entity that gets to learn all about you, a credit bureau.

So, who are these elusive data aggregators and why are they collecting such personal financial information? Credit reporting agencies collect a wealth of financial and personal information about about your wealth. They then offer the information for sale in the form of a credit report. In this article we'll explain what a credit report is and what information is being harvested. Then we'll examine some of the key harvesters to see if one is worthy of investment.

Background: What Are Credit Reports?
A credit report is a compilation of certain personal and financial information on a given individual. The document provides a snapshot of that individual's financial health as well as their payment history.

It contains a surprising large amount of information. It begins with your name and social security number. These agencies will also collect data on any open accounts you have. This includes any credit cards the person has open, whether there's a balance on the card or not. Open accounts also include information on car loans and home mortgage balances. Information such as the account number, bank that made the loan, the date the loan was taken out, and again the outstanding balance may be available.

Reports will also likely contain information about any accounts that are currently in collection as well as their status. Judgments or liens against a person's property may also be revealed as might any bankruptcy filing information. (To learn more, see The Importance Of Your Credit Rating and Check Your Credit Report.)

The Big Three Credit Bureaus
The "big three" in the business are Equifax (NYSE: EFX) and then two privately held companies Trans Union and Experian. Equifax may be the best known of the major reporting agencies. It has a terrific reputation for accuracy, and it has been around for more than 100 years. It is also the only publicly traded credit reporting agency of the big three.

In Equifax's most recent third quarter, the company earned $67.9 million (48 cents per share). That's down sharply from the $78.9 million (61 cents per share) it earned in the comparable period last year. However those numbers are a bit deceiving, because in last year's quarter it received a boost of about a dime per share from the reversal of tax reserves and litigation matters. Meanwhile, its revenue increased about 25% from $394.6 million in the comparable period last year to $492.5 in Q3 this year.

In terms of future earnings, Wall Street expects Equifax will earn $2.30 per share this year and $2.56 in 2008. That implies a growth rate of about 11.3%. Based upon this growth expectation and the current share price, I think there is some upside potential for the stock - perhaps 10% or so from current levels.

The Bottom Line
Credit reporting agencies collect a wealth of personal information on individuals and then sell that data to potential lenders. Of the big three credit bureaus, only Equifax is publicly traded. Based upon its growth possibilities in the next year, I think the shares would be more fairly valued in the low $40 range.

For related reading, check out How Credit Cards Affect Your Credit Rating.

Related Articles
  1. Budgeting

    The 7 Best Ways to Get Out of Debt

    Obtain information on how to put together and execute a plan to get out of debt, including the various steps and methods people use to become debt-free.
  2. Stock Analysis

    Net Neutrality: Pros and Cons

    The fight over net neutrality has become an amazing spectacle. But at its core, it's yet another skirmish in cable television's war to remain relevant.
  3. Credit & Loans

    Don't Get Burned by High Credit Card Rates

    The average card charges 11.8%, and some rates top 20%. Experts warn that credit card interest may remain steep.
  4. Savings

    How Volatile Exchange Rates Affect Your Vacation

    Those ever-changing fluctuations can make a difference in anything from your hotel room to an ATM transaction.
  5. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  6. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  7. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  8. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  9. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  10. Credit & Loans

    Can Corporate Credit Cards Affect Your Credit?

    Corporate cards have a hidden downside. If the company fails to pay its bills, you could be liable for the amount and end up with a damaged credit rating.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Transferable Points Programs

    With transferable points programs, customers earn points by using ...
  3. Luhn Algorithm

    An algorithm used to validate a credit card number.
  4. Roll Rate

    The percentage of credit card users who become increasingly delinquent ...
  5. Truncation

    The requirement mandated by the FTC for merchants to shorten ...
  6. Purchase Money Security Interest ...

    A security interest or claim on property that enables a lender ...
RELATED FAQS
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!