Understanding Credit Bureaus and Credit Reports

Credit Report Facts

Credit reports developed as a result of a more mobile and increasingly complex society.  Your grandfather, and maybe even your father, can tell you stories of walking into the local bank and taking out a loan based on a hand shake.  The reason they could is because the man at the bank probably knew your grandfather, and not just by name.  He knew where he lived, who he was married to, who his kids were and how his farm was doing.  He knew that as people went, your grandfather was either a man of his word, or the kind of man who might try and squirm out of his responsibilities.  So, when your grandfather wanted a loan, he had a pretty good idea of what kind of  risk it would be.  Of course, the problem with this system is that if you are new to town how would anyone know whether or not you were a good risk?

Don't forget you can get a free credit report each year.

The Credit Bureaus

The three major credit bureaus solve the problem of not knowing who someone is when they want to apply for credit.  Each of the three bureaus collects and records the history of your use of credit in their databases.  The institutions that loan you money voluntarily tell the credit bureaus about their experience with you.  Think of it as a much more sophisticated form of the eBay system where buyers and sellers rate each other based on how well the transaction went.

The three major credit bureaus are: Experian, Equifax, and TransUnion.  They are pretty much equals and one is not considered better than the other.  Each one of them keeps a database on you based on your social security number.  This keeps you from changing names and moving to a new city with a clean report.

Getting someone on the phone is never easy, but if you need the phone numbers for credit bureaus, you can find them here.

Your Credit Report

The institutions you do business with report a continuing stream of data to the credit bureaus.  Not only will they report when you don't make a payment or default on a loan, they also report when you do make a payment, and how much of a balance you have left, as well as how much the loan was originally for, and whatever limit you have.  Not surprisingly, this can make for a very thick report depending on your finances.  This is where your credit score comes in handy.