What Are Credit Bureaus?

A credit bureau is merely a clearinghouse for credit history information. When a consumer applies for credit (or in some cases - employment or insurance) the potential lender requests a copy of that consumer's credit report. The bureau then assembles the information from public records and from reports sent from past lenders. Then they sell this information in the form of a credit report to the potential lender who then decides whether to grant the loan or not, based on the credit history of that consumer.

There is, in fact, over 1000 local and regional credit bureaus throughout the United States; however, most are either owned or under contract to the nation's three major credit reporting agencies. These three credit reporting agencies, TransUnion, Equifax, and Experian, maintain centralized databases that contain the credit records of more than 170 million Americans. In total, over half a billion credit reports are generated each year.

Credit bureaus don't rate your credit but some do offer credit scoring services. However, it's strictly up to the lender as to how that information is interpreted. This means that credit bureaus do not approve or reject consumer applications for credit, they merely give potential lenders the information needed to help them make that decision.

Theoretically, all three reports should be virtually identical but in fact, there are often major differences. One of the reasons for the discrepancies is that creditors and other information sources may only send a report to one of the credit reporting agencies. Another reason is that there is often incorrect or outdated information contained in various reports, which leads to one report being substantially different from the others. For example, a credit reporting agency may mismatch the name of one consumer with another and thus insert a report into the wrong credit file. Names, social security numbers, addresses, employers, and other personal information can be easily confused, leading to errors in credit reports.

That's why it's important to periodically check your credit reports (many recommend that this be done every 90 days). If you notice any major variations, you should take a closer look for errors. It's your right to contest any errors that you believe were made.