A credit reporting agency also is known as a credit bureau, is a data collection agency. The agency gathers account details from creditors and provides that detail to a consumer agency. These reports are put in a credit report that includes a credit score when issued.
A credit reporting agency offers details on apersons’ borrowing as well as bill-paying habits. An individual’s credit detail such as loan level is a tool in to know his/her habit. Such credit detail houses reduce the effect of asymmetric information. Between borrowers and lenders which helps them in solving issues. Of adverse selection and moral hazard.
Consumers who have poor credit histories have to pay a higher interest rate. Than consumers who are not with these factors. Also, decision-makers in areas unrelated to consumer credit. Including underwriting of property and insurance, greatly depend on credit records. Because studies have it that such records have value. Consumers also benefit from a good credit detail system. As it less the effect of credit monopoly from banks and offers baits to repay loans on time.
CRA exists to receive various types of details that can be included in customer offerings.
Credit Agency Data
They receive a wide range of details and data which can be included in a credit report. The three largest CRA in the U.S. is Experian, Equifax, and TransUnion. They receive credit details and reports on credit history. These agencies set standards for scoring patterns.
Apart from the three largest CRA, other CRA also exists. On the whole, lenders work with CRA, to get reports, including details that alter a credit choice. CRA partner with other companies to get all types of credit data. Apart from basic details, many CRA also gets public records and payment data on cell phone bills, utility bills, and rent payments. Some new credit agencies are working to provide greater access to the underbanked by developing credit reports to bring in thin-file borrowers that are based on data instead of just credit accounts.
Credit Reports and Credit Scores
Credit reports are done in a standard format that includes a tradeline for each credit account by a borrower. Tradelines display the amount of credit issued, a borrower’s monthly payments. Delinquent payments are reported to a credit agency after there have been two missed payments. Thus credit history on a tradeline will start with 60 days past due report, followed by 90 days, 120 days, and so on. Tradelines also show charge-offs where one defaults in payment.
Tradelines can be reported for various accounts. These accounts include credit accounts, but they may also include items like cell phone payments, tax debt. Most credit agencies also put ad hoc items away from a tradeline to offer good details.
Note that most adverse items that are reported on a credit report remain there for seven years. On the other hand, other items are for ten years. Oversight of all credit agency activities is checked by the Fair Credit Reporting Act (FCRA).