How do Credit Report Companies Get My Information?
In today’s world, information is one of the most valuable things each person has. Businesses want it so they can better advertise to you, and criminals want it in order to steal your identity. We are told to hold our information tightly and to only give out information like birthdates and social security numbers when absolutely necessary.
So, it’s a little frightening that credit scoring and reporting companies have tons of information about you, including your social security number and birthdate, but you never gave it to them. If you’ve looked at your own credit report, and especially if you are trying to repair your credit, you might be shocked at the degree of detail and insight into your life these companies possess. To help put your mind at ease, or just to fulfill your curiosity, here is how a credit reporting company gets your information.
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What Is A Credit Reporting Company?
A credit reporting company tries to gather as much financial information on everybody they can in order to determine how creditworthy and financially stable they are. These are also commonly known as credit bureaus. There are three major credit bureaus in the United States: Equifax, Experian and TransUnion.
The goal of a credit bureau is to have enough information on each individual that they can create an accurate representation of their financial history and ability to handle debt/credit. The data they gather is put into a report and a credit score is created to reflect that report. The more bad stuff you have on your report, like missed payments, the lower your score is. This score is then used by lenders — and in some cases, other people dependent on your ability to pay bills, like a landlord — to make a decision about whether to lend you money or otherwise do business with you.
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Where Are They Getting Their Information?
So, how do credit bureaus get your information? Well, in a strange, convoluted manner, you are providing them with your information whenever you do something with a loan or credit.
Credit bureaus get their information from creditors, banks, landlords, and lenders. Most things that you do with these type of businesses that involve debt or credit, is reported by them back to the credit bureaus.
All sorts of information is sent when you first apply for a credit card or loan, and updates on that information is sent overtime as you do business with them.
For example, when you apply for a credit card, you are asked for your full name, birthdate, and your social security number. Part of the reason this information is requested is so the creditor can check your credit report with a specific credit bureau. When doing this, the credit bureau knows that somebody is checking your credit with your authorization, and also knows if you got that new credit card. Not something good or bad on your credit report, just something they know. The credit card company will use this report — especially your credit score — to determine whether or not to give you a card a line of credit, as well as what interest rate and terms to assign you. As a consumer, this may be your first indication that you need to do some work to repair your credit, either to get a lower interest rate or simply to get the credit card you want.
Then, as you use that credit card, information is sent back to the credit bureaus. If you keep up with your payments on time, then the information sent back is viewed as positive, and builds your credit history while raising your credit scores. If you miss a payment, that information is also sent back to credit bureaus to tell them you made a mistake, and most likely lowering your credit score.
Different Credit Bureaus Have Different Information
Not every business reports to every single credit bureau. Technically, sharing your information with the credit bureaus is entirely voluntary, so what information gets shared with which organization can be maddeningly inconsistent. Some might have a primary bureau they send all of their information to, including normal updates when you are paying your bills, and a secondary one they only update when you do something wrong. In this scenario, that third bureau gets no information and isn’t aware of what’s happening between you and that specific business. This is another situation where you may want to take a look at your own credit reports from all three bureaus, and see whether there are any discrepancies or errors that could misrepresent your creditworthiness to a lender. Credit repair can help ensure that no matter which bureau is being asked for your report, you are being fairly and accurately represented to lenders.
Although it isn’t required by law, it is generally in the interest of all lenders and financial institutions to report routinely and accurately. This way, they increase the likelihood of credit scores generally giving them a clear idea of the risk involved in lending or doing business with people, which ultimately helps them make smart decisions, and offer the right products or services to people based on risk and their credit history. Thus, most major corporations and nationwide banks report to all three credit bureaus. Smaller organizations usually report major events to all three, but pick and choose for everything else. Big events can include things like:
- taking out a home or car loan
- failing to pay back a large loan
- declaring bankruptcy
- missing multiple payments on a loan or credit card
- having debt go to a collections agency
It’s pretty common among younger people to have a decently active credit report with one bureau, but very little with the others. This can be because they don’t do a lot of business or have open lines of credit/loans with multiple organizations. For example, an 18 year old might have a single credit card that only reports to one credit bureau. With that singular credit card information, that person might have good credit with that one bureau, but poor or nothing on the other two. The challenge here isn’t so much repairing credit as it is building a credit history; creating more opportunities for information to be shared with the credit bureaus.
Having Your Information Isn’t Bad
While it might be a little unsettling knowing that credit bureaus have so much information about you, it isn’t a bad thing. For the world of credit cards, loans, and debt to function, we need organizations to keep track of who is creditworthy and who isn’t, as well as to have the ability to change bad financial habits, fix credit, and earn access to loans, apartments, and more.
The reason they need personal information like your social security, birth date and your full name is to keep an incredibly accurate record. Then, all other information pertains to how trustworthy you are when it comes to loans and credit. Gathering that information from all sources is essential to having a good report on everybody, thus why credit bureaus try to get information from all types of lenders and creditors.
For more on credit scores and the credit bureaus, visit our credit score resource and learning center. Is the information the bureaus collected incorrect? Learn how to dispute the information at our letter template resource center.
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Ben Allen is a freelance content creator and digital marketer who believes in helping small businesses succeed. He spends his free time bragging about his two daughters, eating stuffed crust pizza, and playing video games.
This post was updated July 31, 2018. It was originally published August 21, 2017.