What Is a Credit Reporting Agency?


Credit reporting agencies are an integral part of the credit scoring process. Whether you’re working on repairing your credit, building it from scratch, or maintaining an excellent score, it’s important to understand what these agencies do and how they work.


Knowing the ins and outs of credit is vital to get approving for loans and credit cards. It will also help you get lower interest rates. After learning the basics, you can use this knowledge to your advantage to get your credit score as high as possible.

What are credit reporting agencies?

A credit reporting agency is also known as a credit bureau or consumer reporting agency. They collect and record the credit information of both individual consumers and businesses.

In the United States, the industry is dominated by the largest three credit reporting agencies: Equifax, Experian, and TransUnion. They are three separate companies in competition with each other and, consequently, don’t share information back and forth. So, it’s not uncommon to see different information from each credit reporting agency.

Data Collection

The most common types of credit information collected by credit reporting agencies include loan balances, credit card balances, payment history, account statuses, and public records.

Consumer reporting agencies then sell your information to banks, insurance companies, credit card companies, and other lenders. These companies use this data to create a customized prescreened offers based on your credit profile. They even sell your information back to you.

This process provides these financial institutions with a way to better judge your creditworthiness based on your past choices and current debt load. Insurance companies also decide your rates, and employers can decide whether to hire you or not based on this information.

Private Companies (Not Federal Government Agencies)

However, it’s important to note that despite their seemingly official role, all three major credit reporting agencies are for-profit companies. They are in no way affiliated with the federal government.

Their primary purpose is to maximize profits for their shareholders, just like any other publicly traded company.

That’s why it’s essential to monitor your own credit report to ensure the accuracy of the information there. Making sure everything is complete and correct is in your best interest, but not necessarily theirs.

How did credit reporting agencies get started?

The big three credit bureaus, TransUnion, Equifax, and Experian, all trace their ancestry to small, local investigative companies. These early credit bureaus would collect every bit of seemingly relevant information they could about a person. This includes employment history, marital status, age, race, religion, and testimonials.

They then provided this information to creditors, who used it to determine whether a person was worthy of a loan. Creditor also used it to determine how much interest they would be required to pay.

Over time, they grew and merged until the credit reporting system moved from one with many local bureaus to the current system of three major nationwide credit bureaus.

As this happened, the three largest bureaus became so powerful that it became necessary to regulate them. This resulted in the Fair Credit Reporting Act (FCRA) being passed to protect you from their growing power.

How do credit reporting agencies work?

Every month, banks and other creditors send millions of records to the credit reporting agencies, updating them about their borrowers. These reports include whether the borrowers paid the money they owed that month, if they were late making a payment, or if they defaulted on their balance.

They accumulate all the data given to them by the banks and list it on each individual’s credit report.

While most credit report information is updated monthly, they usually have a processing time of several weeks before everything is completely up-to-date.


Reporting Is Not Required

No creditor or business is required to send consumer credit information to the credit reporting agencies. Most large lenders and credit card issuers report regularly. However, it’s less likely that smaller financial institutions take this extra step. Or, they might only report to one or two agencies.

Then again, some companies may not report your positive payments each month. They only let the credit bureaus know if you’ve missed a payment.

If you apply for financing while rebuilding your credit, ask your lender or creditor whether they report to all three credit reporting agencies to ensure you’ll improve all three credit scores.

What is the function of Equifax, Experian, and TransUnion?

Credit reporting agencies collect data from participating lenders and creditors, then report the information back to financial institutions on the overall credit history of credit applicants. Too many negative items on your credit reports can result in a low credit score.

You could then either be denied new credit accounts altogether or be subject to a higher interest rate and lower credit line. This can make borrowing money costly.

Payment History

You can avoid going through this situation by understanding everything that a credit reporting agency includes in your credit reports. For example, one of the most common negative items that can appear on your credit report is late payments.

Late payments come from credit cards and loans, like your mortgage, car loan, student loan, or personal loan. Even if you don’t borrow money, other companies can also report late payments, such as cell phone carriers and utility companies.

It’s crucial to make your payments on time for your bills each month. A late payment can be reported at the 30-day mark on your credit report, and is re-listed in 30-day increments after that.

Your credit scores will continually drop as the balance remains unpaid. However, many lenders and credit card companies also report on-time payments, which can go a long way towards building a strong credit score.

Public Records

In addition to your payment history, credit reporting agencies can also import public records from the court systems. This includes bankruptcies, judgments, tax liens, charge-offs, repossessions, credit counseling, and collections. Most of these items stay on your credit report for seven to ten years.

It’s difficult to prevent this information from appearing on your credit report, but it’s not impossible to have it removed. A knowledgeable credit repair company can help you create a strategic plan to get negative items removed from your credit report to improve your credit scores. Click here for a list of our top-rated credit repair companies.

Credit Report Errors

Credit reporting agencies deal with millions of data records every month, and they are very prone to making mistakes. According to an FTC report, one in five Americans has a mistake on their credit report.

These errors can be costly. So, it’s imperative to make sure you see what’s being reported about you often, especially before you apply for a loan of any kind.

The FCRA allows you to request a copy of your free credit report from each credit reporting agency every 12 months to see if there are any mistakes listed. You may be entitled to additional free credit reports in certain circumstances, such as:

  • after placing a fraud alert
  • becoming unemployed and intend to apply for employment
  • receiving public assistance
  • being denied credit or insurance in the past 60 days.

If you see any mistakes on your credit report, you can file a dispute to get the incorrect items removed. Also, know your rights regarding credit reporting, so you aren’t unfairly penalized the next time you need financing.

Who oversees the credit reporting agencies?

Credit reporting agencies aren’t public entities or government agencies, but that doesn’t mean there’s no government oversight involved.

Since 2012, the Consumer Financial Protection Bureau has been tasked with supervising the largest agencies at a federal level. The CFPB conducts exams to monitor how the credit reporting agencies screen for accuracy, investigate consumer complaints, and other procedures.

If you have a complaint with one of them, you can contact the CFPB, the FTC, and your state attorney general. It may seem like many steps, but it’s best to cover your bases and get as many regulators involved as possible if there’s any potential wrongdoing.

How does the FCRA regulate credit reporting agencies?

In addition to ongoing government oversight, credit reporting agencies must also comply with the FCRA. This federal law helps to protect consumers by requiring the agencies to investigate all disputes within 30 days.

This doesn’t guarantee that credit bureaus are making sure your credit reports are accurate. However, it does give you recourse when they unfairly report your credit history.


Additionally, the FCRA allows you to opt-out of being included on marketing lists sold by credit reporting agencies. You can do so by calling 1-888-5-OPT OUT or visiting www.optoutprescreen.com.

Unfortunately, the FCRA did not eradicate all the problems of the credit reporting system. The credit bureaus are still enormous corporations with enormous power.


Handling Credit Disputes

Credit reporting agencies are also still primarily motivated by the money they make by selling your credit information. Providing you with a free credit report and investigating credit disputes is something they are legally obligated to do. It’s not something they were willing to do on their own.

As such, the credit bureaus do what they can to avoid these practices. Knowing the history and motivations behind them is essential for understanding the nature of the credit reporting system.

When you know the true persona of the credit bureaus, you can then see why you are granted access to your credit reports. You can also see why you have the right to repair your credit and why it can be beneficial to have a credit repair expert working on your side.

Take the time to learn about the FCRA and the FDCPA and any other laws that govern credit bureaus, creditors, and collection agencies.

Getting Help from the Professionals

Ready to Raise Your Credit Score?

Learn how credit repair professionals can assist you in disputing inaccuracies on your credit report.

The FCRA has certainly improved the dispute process. However, it can still take a lot of time and effort to get a negative item removed from your credit report. That’s because oftentimes, you need to work with the credit reporting agencies, your creditors, and debt collectors.

If you don’t have time to write dozens of letters to creditors and credit reporting agencies, there are legitimate credit repair services that can help you out.

Credit repair companies help consumers deal with credit bureaus and get negative items removed from their credit history.

They can also help you deal with your creditors and collection agencies. And since they have teams of lawyers with specific expertise and experience in this field, your chances of success are a lot higher.

How can I contact the three major credit bureaus?

You can find their contact information on this page: Credit Bureau Contact Information

Lauren Ward
Meet the author

Lauren is a personal finance writer who strives to equip readers with the knowledge to achieve their financial objectives. She has over a decade of experience and a Bachelor's degree in Japanese from Georgetown University.