Credit Bureau

What Is A Credit Bureau?

A credit bureau is a credit reporting agency. It is an organization that collects and researches individual credit information and sells it to creditors for a fee to make decisions about extending credit or granting loans. Credit bureaus do not determine whether or not one will get credit. Instead, they compile and synthesize information regarding one’s credit risk and give it to lending institutions who will decide whether or not an individual should get credit.

Deeper Definition

A credit bureau or credit agency collects credit agreements such as loans, credit cards, mortgages, insurance payments, mobile phone payments, utility payments, social security numbers, ID numbers, and electoral roll, i.e., voter registration data. They may also collect court information such as county court judgments, bankruptcies, and tax liens. These pieces of information can then be purchased and used by lenders to grant credit such as loans and mortgages. Some lenders/institutions may also purchase credit data to carry out identity checks before further checking or offering services.

Credit bureaus generally collect and resell data for individuals (i.e., consumers) and businesses (think of a business as a separate legal entity just like a person). Access to this data allows lenders to risk-assess enterprises and grant credit.

Credit Bureaus keep comprehensive credit information, which provides details on credit facilities already availed of by a borrower and his payment track record. It is an organization providing information on individuals’ borrowing and bill-paying habits. That helps lenders assess creditworthiness (the ability to pay back a loan) and set the interest rate and other loan terms.

Credit Bureau Example

A long time ago, when banks were not famous for granting loans, many individuals who had money in abundance started giving loans to people. Some of these money lenders often referred to as “loan sharks” because of their aggressive nature when it was time to call in their money, went bankrupt because they lent money to people who promised to pay but defaulted. Credit bureaus came into play to help mitigate such losses. By collecting information on borrowers, lenders can make better decisions. An example of a credit bureau is Equifax. The company operates or has investments in 24 countries, including the United States, the United Kingdom, and Australia.