Credit Bureau

Detailed Explanation

A credit bureau, also known as a credit reporting agency, is a company that gathers and stores financial data about individuals. This data primarily includes credit history, which is a record of an individual's past borrowing and repayment, including information about late payments, debt balances, and available credit. The bureaus obtain this information from various sources, including banks, credit card companies, collection agencies, and governments.

The primary function of a credit bureau is to provide this information to creditors, such as banks, to help them assess the creditworthiness of potential borrowers. This evaluation helps lenders decide whether to extend credit to an individual and on what terms (e.g., interest rate). Credit bureaus also provide credit reports to individuals so they can understand their credit standing and check for inaccuracies.

Credit reports compiled by bureaus include personal information (like name, address, and Social Security number), credit accounts (including type, date opened, credit limit, account balance, and payment history), and public records (such as bankruptcies, foreclosures, and tax liens). Credit bureaus also calculate credit scores based on this data, which are numerical summaries of an individual's creditworthiness.

Example

John applies for a mortgage to buy a house. The lender requests a credit report from a credit bureau, which reveals John’s credit history, including his student loans, credit card balances, and payment history. Based on this report and his credit score, the lender decides John is a low-risk borrower and approves the mortgage with a favorable interest rate.

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Related Terms

Credit Report: A credit report is a detailed record of your borrowing and repayment history. It includes information about your open and closed credit accounts, such as credit cards, loans, and mortgages. 

Credit Score: A numerical expression representing an individual's creditworthiness, based on an analysis of their credit files.

Credit History: Credit history is a record of an individual's or entity's past borrowing and repayment activity, including loans, credit cards, and other forms of credit.

Lender: A lender is any person or institution that loans money. This includes banks, credit unions, mortgage companies, and online lenders. Lenders use your credit report and credit score to assess your creditworthiness and determine whether to approve you for a loan.

Borrower: A borrower is an individual that takes on debt by receiving funds from another party, typically a lender, under the agreement that the borrower will repay the equivalent funds at a later date, with interest.

Frequently Asked Questions

What is the difference between a credit bureau and a credit report?

A credit bureau is the agency that compiles credit reports, which are the records of an individual's credit history.

How do credit bureaus get my information?

Credit bureaus collect information from various sources, including lenders, credit card companies, and public records.

Can I access my credit report?

Yes, individuals can request their credit reports from credit bureaus to review their credit history.

How often is my credit information updated?

Credit information is typically updated monthly, but this can vary depending on the reporting practices of the creditors. 

What should I do if I find an error in my credit report?

You should report any inaccuracies to the credit bureau, which is required to investigate and correct any verified errors. Here's information on how to do that.