There sure are a lot of preconceived notions when it comes to credit bureaus. For the most part, people believe that these are unforgiving groups of people out to squeeze the last cent out of your bank account just to make sure you pay off your debt. By and large, this is a huge case of mistaken identity. Most of this judgment can probably be attributed to the presence of the term “credit” on the name of the entity.
To spell it out a little bit clearer for those who are not entirely sure what a credit bureau does, however, here is a quick run-down of its definition, capacities, scope of work, and most of all, how you can get help from them.
What is a Credit Bureau?
In a nutshell, credit bureaus are those institutions that collect individual credit information. The information they gather may be derived from your very own bank, your public records, or from wherever else you have an existing transaction or loan. From this alone, it can already be inferred that their function is really mostly that of information-gathering.
They seek to have information on the state of a person’s credit capacity, by basing it on the history of their transactions. It may seem like such an intrusion upon your privacy, but if you think about it, it really is there to offer you protection. Most people do not really think too much about how they spend their money, or where it goes for that matter. The next thing they know, they are up to their neck in debts, and with nary a notion of how the situation got to be that bad.
While credit bureaus do not necessarily have the power to stop you from spending your money away recklessly, they do have the ability to help you with checking your credit report. The information that they can provide for you will inevitably be pivotal in dissecting and understanding just how good – or bad – you are at handling your finances.
Scope of work
Now, credit bureaus as financial-assisting institutions are value-neutral by itself. This means that inasmuch as they can assist individuals like you looking to better understand their credit scores, they are also there to help out the lenders. Banks also turn to them so that they can determine if you are capable enough to be entrusted with a loan. Credit bureaus will then provide the banks with information on your borrowing habits, as well as how prompt you are at paying them.
Of course, you should know that it is standard practice for the banks to first appraise you as a lender before they actually proceed with lending you the money. Otherwise, they will be running a great risk with their business if they arbitrarily decide to let you take out a loan from them when they know that you are in no position to pay it back.
Fair Credit Reporting Act (FCRA)
In the United States, any credit bureau under the federal Fair Credit Reporting Act is known to be a consumer reporting agency (CRA). Basically, they embody the very definition of a credit bureau mentioned above. Aside from that, you will also have to go through them for you to be able to get or check your credit score.
Should you want information regarding your transactions, you would also want to ask for your credit check from them. As explained earlier, all transactions you would ever make in your financial life will be delved into by these credit bureaus.
To a certain extent, they are obviously very powerful agencies. The information held in your credit report is the key to your purchasing power. If you would like to take out a loan, but your credit does not reflect well on you, then the banks and credit card companies can use that information to keep you from getting the money you need.
Improvement in status quo
Actually, it used to be that consumers had no access to their credit reports. Banks, landlords, and even employers would seek the help of these bureaus to “snoop in”, so to speak, on a person’s financial history. Based on the information that they would get, they could then decide if they will approve the loan, employment, or lease of the individual.
The catch was in years past this information was not open to the people, this very vital information that may have had errors. So, people were being denied without knowing or understanding why exactly. It was only with the implementation of the Fair Credit Reporting Act in 1971 that a ray of sunlight streamed right in for the consumers.
Today, consumers can definitely consider themselves lucky because it is now considered to be a right for people to be informed of their credit standing. You can now get your credit reports from authorized credit reporting agencies, and see for yourself if there are any anomalies in your records.
You would be surprised at just how many serious errors your credit report can contain. That is why if you are not careful, you may end up being one of the 5% of the U.S. consumers who pay more for loans and other transactions simply because of erroneous information provided to the credit bureaus. Mistakes may also come from public information or one of the 40+ consumer reporting agencies that gather and sell the information. Still others could come from simple human error, it might be needless to say but there can be a lot of sources where error’s may stem from.
The bottom line is simple: you can now get credit reports regularly. Use this to your utmost advantage. It doesn’t really take rocket science for you to make use of this service and to use it to your benefit. Credit bureaus need not be the villains; in this scenario, they are clearly your friends more than a foe.
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