What are credit reporting agencies?

When you think about your credit report, do you ever wonder who’s compiling all of this information about you and why? How did the idea to monitor people’s financial activity even come about in the first place? Although the concept is a relatively modern one, it’s firmly rooted in today’s society. Read on to learn what credit reporting agencies are, how they operate and why you should care.

What are credit reporting agencies?

Credit reporting agencies (also known as CRAs or credit bureaus), create reports that detail people’s financial history, then sell that data to businesses. Credit reports help companies determine whether someone is likely to be a responsible borrower. 

The data in credit reports help form our credit scores. CRAs get this data from lenders, utilities companies and other firms that might report your payment history. They’ll also report such factors as your balances and the amount of any open credit lines. 

One thing that you won’t see on your credit report, however, is your credit score — that’s because credit scores and reports are two separate things. The question is how the idea of creating these financial report cards came about to begin with.

According to a white paper published by the Consumer Financial Protection Bureau in 2012, the first credit reporting agencies were founded in the 1800s to help merchants understand who not to lend to. Prior to this development, someone’s reputation would be the only way to know — and reputation can be subjective.

The first iteration of credit reporting was simply a list of individuals known to not pay debts on time, which is not unlike the way ChexSystems works today. Nowadays, though, credit reports display both positive and negative information about consumers. 

CRAs are also bound by the Fair Credit Reporting Act (FCRA). The FCRA is a federal law designed to protect consumers from inaccurate credit reporting. Additionally, thanks to the FCRA, consumers have a right to view their credit reports for free annually.

3 credit reporting agencies you need to know about

1. Equifax

• Headquarters: Equifax Inc., 1550 Peachtree St. NE, Atlanta, GA 30309-2402, United States
• Number of Consumer Records: 210 million worldwide

2. Experian

• Headquarters: Experian PLC, Newenham House, Northern Cross, Malahide Road, Dublin 17, D17 AY61, Ireland 
• Number of Consumer Records: 220 million in the U.S.

3. TransUnion

• Headquarters: TransUnion, 555 W Adams St., Chicago, 60661-3719, United States 
• Number of Consumer Records: One billion worldwide

Why you need to review your credit reports regularly

As you might have already gathered, the fact that there are three different CRAs means that everyone likely has three different credit reports. What’s more, one person’s three credit reports aren’t guaranteed to be identical. 

When a company reports your financial activity to CRAs, they get to pick which ones they want to work with. They might choose one or more, but they aren’t required to work with all three. Therefore, staying on top of your credit reports means regularly reviewing all three of them. 

Here’s why that’s important: The information on your credit reports helps inform your scores. Your credit scores dictate whether or not you’ll be approved for credit (and at what interest rate). Since it’s possible that there are errors on your credit reports, you could have lower credit scores than you deserve — potentially leading to missed credit opportunities. 

All you have to do to make sure that this doesn’t happen to you is review your credit reports at least once a year and promptly dispute any errors you see. This is a service that all CRAs offer for free. (Other free services that they offer include fraud alerts, report freezes and other anti-identity theft measures.) 

Once you know your credit reports are safe and accurate, you can be sure that your credit is ready for whatever’s on your financial wish list.

This article originally appeared on UpturnCredit.com and was syndicated by MediaFeed.org.