A movie came out some years ago called “The Adjustment Bureau.” In it, shadowy figures in suits and fedoras went around changing reality and timelines to suit a “higher purpose.” Pretty freaky stuff.
More freaky than that, there actually are shadowy bureaus of people who are in control of one of our most precious identifiers: our credit scores.
With interest rates and inflation on the rise, I’ve had a lot of people switch from asking about retirement to asking about the here and now. And nothing is more important to the present than our Credit Scores. If you’ve been trying to raise your credit score, it’s good to know something about the people keeping those scores.
Who Are the Credit Bureaus?
The three credit bureaus are defined and regulated by the US government. Primarily governed by the Consumer Financial Protection Bureau, all the separate credit Bureaus are actually private companies that got their start in real estate, insurance, and offering credit to shoppers in department stores.
As time went on, these companies had become the largest collectors and organizers of data pertaining to individuals and their credit habits. Over time, they began to sell this information to other creditors and insurance agencies.
According to reported earnings, Experian is largest of the Big Three Credit Bureaus, and they are also the only one not based in the US. The history of Experian is a little convoluted, but they began largely as a company supplying credit to individuals in Great Britain and related markets for use at department stores and other merchants.
By 2006, Experian emerged after half a dozen mergers and corporate shuffling to become the Credit Bureau we know today. As the largest of the Big Three, it stands to reason that they have had their fair share of data breaches and fines from the Federal Trade Commission.
The largest of the two American Credit Bureaus, Equifax traces its history all the way back to 1899. They began as a company offering retail credit to consumers, and through that, became one of the largest record holders of consumer data in the US.
By the 1920s they were selling some of that information to other credit companies, and by the 1960s and 70s they were even offering their data to insurance companies. They began to face allegations that personal information such as childhood history and relationship habits were being sold by them.
Equifax today still largely handles business-to-business transactions. Though they do offer a once-per-year credit report, as required by law, their main operations pertain to selling information about our credit habits to other companies.
TransUnion is the smallest of the Credit Bureaus, though they have been around since 1968. Originally founded as a holding company, they acquired a large set of data in the 1980s when they purchased a creditor company.
Following that acquisition, they began supplying consumer information to a number of companies and services, including to landlords and property managers. Following this, in 2014 they began offering a service by which consumers could use the credit/renter connection to their advantage, and introduced the first-of-its-kind ResidentCredit option. This allowed renters to add their rental history to their credit reports in a positive way.
How the Credit Bureaus Work
There’s a lot of talk these days about “protecting your information.” And that’s all good. But let’s talk turkey, for a moment. Everytime you take money out of an ATM, the bank records how much you take out, and where the ATM is. They can tell you the aren’t selling that info, but they still might use that information for themselves.
Or they might trade it, or even give it away. Credit Bureaus have been around in the US for over a century, and they work the same way as social media targeting you with foot-cream adds: they track our habits, collate them into a narrative, and sell the conclusions.
Tracking Our Habits
The Credit Bureaus essentially gather all the available information on us that they can. They approach all the credit card companies and ask them for how much our limits are, how much we owe, how often we make our payments.
Then they do the same thing with our car loan company, our mortgage company, our student loans, and so on.
After the information is collected, they use a formula called the FICO scoring system (developed by Fair, Isaac, and Company) to aggregate a score. The less you owe against the potential for borrowing, the higher our scores.
How the Data Goes Back and Forth
Why, might you ask, do companies hand over this data to the credit bureaus? It’s a game of “scratch my back, I scratch yours.” When a bank wants to know if they should issue a mortgage loan to Joe Smith, they ask the three Credit Bureaus about his credit history. Of course, the Credit Bureaus are happy to sell that information to the bank, provided that bank has been selling them all the information about us to them.
Credit data gets reported to the Bureaus every month. Every thirty days. And we’re “allowed” to “request” a free credit report… every year. That’s every twelve credit reporting cycles.
In the meantime, your data and mine has been traveling back and forth a dozen times, telling a story about us that may or may not be true.
What Can We Do?
Everyone has seen the commercials for free credit apps. Trouble is, many of those apps are owned or have partnerships with the credit bureaus themselves. That’s a double edged sword. On the one hand, they do have accurate data. On the other hand, they aren’t necessarily on our side.
That’s why I recommend using a trustworthy credit repair company that can help you monitor and fix any errors on your credit report. I’ve vetted all the companies I recommend, and one thing I can say about all of them: they speak the Credit Bureau Language.
It’s a messy landscape in the world of credit reporting, and what goes on there can affect our ability to get jobs, get apartments, and get the lives we’re all working hard to attain. If you’re on the path to repairing or monitoring your credit, it might do you well to remember the Bureaus we’re up against, and get an ally to help.