Credit Bureau

What is a 'Credit Bureau'

The credit bureau is an agency that researches and collects individual credit information and sells it for a fee to creditors so they can make a decision on granting loans. 

BREAKING DOWN 'Credit Bureau'

A credit bureau works for lending institutions to help them make loan decisions in individual cases. The primary purpose of credit bureaus is to ensure that creditors have the information they need to make decisions. Typical clients for a credit bureau include banks, mortgage lenders, credit card companies and other financing companies. Credit bureaus are not responsible for deciding whether or not an individual should have credit extended to them; they merely collect and synthesize information about that individual's credit score and give that information to lending institutions. Consumers can also be members of credit bureaus, and they receive the same service – information about their own credit history.

Credit bureaus will look at an individual's borrowing and bill-paying habits to determine whether they represent a risky loan. Reports from credit bureaus will also determine the interest rate for debtors on their loans; an individual with a higher credit score will likely have a higher interest rate on their loan. Bureaus acquire their information from data furnishers, which can be creditors, debtors, debt collection agencies or offices with public records (court records, for example, are publicly available). This information is generally assembled into a mechanistic, numerical formula that offers an assessment of the credit history of the individual in question for the use of the credit bureau's clients.

In the United States, credit bureaus are called consumer reporting agencies (CRAs). While credit bureaus don't actually make lending decisions, they are very powerful institutions in finance and the information contained in their individual reports can have a substantial impact on an individual's financial future. The Fair Credit Reporting Act, passed in 1970, regulates credit bureaus and their use and interpretation of consumer data, and is primarily designed to protect consumers from deliberate or negligent information in their credit score reports.  Despite this, consumers often report inaccuracies in their credit scores, which can result in higher interest rates or difficulty getting loans. The three main credit bureaus in the United States are Equifax, Experian and TransUnion, though there are a number of smaller companies that provide similar services.