DEFINITION of 'Credit Agency'

A credit agency is a for-profit company that collects information about individuals' and businesses' debts and assigns a numerical value called a credit score that indicates the borrower's creditworthiness.

Creditors and lenders, such as credit card companies and banks, report their customers' borrowing activity and history to credit agencies. Individuals and businesses can obtain copies of the information reported about them by contacting the credit agency or a related third-party company, and paying a nominal fee.

BREAKING DOWN 'Credit Agency'

The information provided to credit agencies includes how much credit is available to that borrower, how much of the available credit they have used, and what their repayment activity looks like. Credit agencies, also known as credit ratings agencies, help potential lenders and creditors determine whether to lend or extend credit to an individual or business, by predicting the likelihood that the borrower will repay the debt in a timely manner.

Ways Credit Agencies Affect Financial Transactions

The assessments and ratings provided by credit agencies can effect financing-driven purchases and activities such as buying a car or securing a mortgage to acquire real estate. Conversely, the repayment of tuition loans for college students may affect the ratings assigned by credit agencies.

Three consumer credit agencies are TransUnion, Equifax, and Experian. There can be variances in the ratings assigned by the agencies for the same individual. These differences may stem from different businesses and lenders reporting financial information about borrowing and repayment activity to some agencies, but not to all three.

The scores and credit reports that are generated by these agencies may be used for other purposes outside of loan approval. For instance, certain employers might request the credit rating of potential hires when considering job candidates. This may be due to the nature of the position, which could require a high sense of fiscal responsibility.

Businesses can likewise be assessed by credit agencies, not only for their financial fitness to repay financing they apply for, but also for the sake of potential investors in the business. As part of a due diligence process before a deal, the credit score of the business will likely be examined by the party that wishes to engage in a financial transaction. For example, a potential buyer who wants to acquire a business may want to understand its financial health before it secures the deal. Likewise, potential backers in a funding round or prospective buyers for a public offering from the company may require a report from a credit agency before advancing their plans.

RELATED TERMS
  1. Credit Rating

    A credit rating is an assessment of the creditworthiness of a ...
  2. Credit Reference

    Credit references can be a credit report or documented letter ...
  3. Credit Report

    A credit report is a detailed report of an individual's credit ...
  4. Credit History

    Credit history refers to the ongoing documentation of an individual's ...
  5. Credit Bureau

    A credit bureau is an agency that collects and researches individual ...
  6. Corporate Credit Rating

    A corporate credit rating is an opinion of an independent agency ...
Related Articles
  1. Personal Finance

    The top 3 credit bureaus

    Learn about the top three credit bureaus: what they do, how they develop your credit score – and why the credit scores they assign you may differ.
  2. Small Business

    How To Increase Your Appeal To Prospective Lenders

    Making a business eligible for loans/credit cards at the best possible rates requires crafting an excellent credit profile through the smart use of credit.
  3. Personal Finance

    The Importance Of Your Credit Rating

    A great starting point for learning what a credit score is, how it is calculated and why it is so important.
  4. Personal Finance

    Is Your Credit Score at 850? It Can Be!

    Use these tips to increase your credit score and your ability to get low interest rates on loans.
  5. Personal Finance

    Do You Understand Your Credit Score?

    Most Americans don't really understand their credit scores. Find out what you need to know.
  6. Personal Finance

    Take the Right Steps to Build Excellent Credit

    There are several things you can do to protect and improve your credit score.
  7. Personal Finance

    4 Personal Financial Tips for Young Professionals

    Young professionals should consider these four tips to establish a solid financial foundation.
  8. Personal Finance

    How to Read Your Consumer Credit Report

    Learning how to read your consumer credit report is vital, as it includes important information about your credit history.
  9. Personal Finance

    10 Ways Advisors Can Help Clients Improve Credit Scores

    Properly managing credit scores can help get new loans and save a lot of money in the process.
RELATED FAQS
  1. What are the benefits of credit ratings?

    Credit ratings are an important tool for borrowers to gain access to loans and debt. Typically, the better your credit rating, ... Read Answer >>
  2. Is it possible to have a credit limit that's too high?

    Avoid these pitfalls when working with high credit limits, and learn how to increase your credit score by increasing your ... Read Answer >>
Trading Center