It is easy to confuse credit bureaus and credit rating agencies, especially as credit bureaus are sometimes called "credit reporting agencies." To distinguish between credit bureaus and credit rating agencies, it is useful to look at who they rate and how each reports on creditworthiness.
What Is a Credit Rating Agency?
Credit ratings provide investors with information about debt obligations, fixed-income securities and the issuers of debt-based investments. They are different from credit reports and credit scores. Credit ratings are compiled and distributed by credit rating agencies, of which there are three major international players: Moody's, Standard & Poor's and Fitch Ratings.
Credit rating agencies allow investors to compare the risk-reward potential of certain investments and provide insight into the financial stability of debt-issuing companies. Credit ratings are also assigned to insurance companies as a way to represent their financial solvency.
Credit ratings are issued in letters, such as AAA or CCC, so that investors are able to quickly look at a debt instrument and gauge its risk. The ratings differ among the three major agencies. Credit ratings are based on a number of variables and involve market-based, historically estimated, company-level information. Assessments range from business attributes to underlying investments and are all designed to measure the likelihood the borrower will repay its debt.
What Are Credit Bureaus?
Credit reports and credit scores are compiled primarily for lenders about individual borrowers. The agencies that gather and distribute information about consumer creditworthiness are called credit bureaus, or credit reporting agencies.
The industry is dominated by the top three credit bureaus: Experian, Equifax and TransUnion. One interesting feature about the credit bureau business model is how information is exchanged. Banks, financing companies, retailers and landlords send consumer credit information to the credit bureaus for free, and then the credit bureaus turn around and sell consumer information right back to them.
Credit bureaus package and analyze consumer credit reports from which credit scores are derived. Credit scores are issued as a number, typically between 300 and 850. Your credit score impacts the loan amounts you can qualify for, the interest rates you pay on those debts, and sometimes your ability to rent a home or secure employment.
You can gain access to your own credit reports, free of charge, once per year from each credit bureau. Both credit rating agencies and credit bureaus are highly regulated and have come under increased scrutiny since the 2007-08 financial crisis.