What You Should Know About Credit Reporting Agencies
Credit reporting agencies are oftentimes just referred to as credit bureaus or credit agencies, and there are three primary entities: Experian, TransUnion and Equifax. What do they do? Are they regulated? How does what they do affect your ability to get a loan?
What Do Credit Bureaus Do?
Credit bureaus like Equifax, Experian and TransUnion gather your information about your finances from government offices, various lenders, collection agencies, and wherever else you make payments to in order to create your financial profile known as your credit.
Your credit consists of your profile and score which are constantly changing because they are determined by models the three bureaus calculate. For example, as you spend money on your credit card, the company you got your card with reports each time you get closer to your credit limit to the bureaus. This will change your score in real time because your score will get lower the closer you get to reaching your credit limit. Your credit score will remain steady each time you pay your monthly balance on time.
Late payments on anything, including a mortgage, credit card, tax bill, medical bill, or even a parking ticket, will be reported to the bureaus, and your credit score will decrease.
How Does This Affect Applying For a Loan?
Lenders are required by federal law to check your credit scores and history during the loan approval process. To do this they will pull your credit report from Experian, Equifax and TransUnion. The credit score they discover will determine if you qualify for a mortgage or not, as well as the interest rate on that mortgage if you do qualify.
As an example, perhaps you had a couple late payments on your credit card which made your score drop to 680 from 780. In this case, you could still qualify for a mortgage with a 20% down payment, but your interest rate could be 0.30% higher or more just by that drop in credit score.
Any late payments on any of your accounts will be listed on your credit report for 7 years after the date of payment, but your credit score will begin improving just 2 years after the payment.
Other items that will remain on your credit report include:
- Inquiries from any creditors you have applied with (2 years)
- Judgements (7 years from filing date)
- Collection accounts (7 years from late payment – original creditor)
- Tax liens (7 years from date lien is paid)
- Bankruptcies (7-10 years but it depends on which type)
How Are the Bureaus Regulated?
Equifax, Experian and TransUnion have a lot of power since they are the source of data for so many lenders inquiring about mortgages or loans. However, they are regulated so that the consumer is protected.
Most of the regulations for these bureaus come from the main laws listed in the FCRA (or Fair Credit Reporting Act) that was created back in 1970, with additional updates and protections added in throughout the 1990s and 2000s. These laws are enforced by the CFPB (or Consumer Financial Protection Bureau) and make sure that:
- You receive one free credit report each year from AnnualCreditReport.com which is maintained by the three bureaus (this does not include your credit score).
- You are told if you are denied a loan because of your credit history.
- Creditors can be asked to reveal your credit score. (Your lender must give you your credit score once you complete a mortgage application.)
- You can dispute outdated, inaccurate, and incomplete information provided by the bureaus and they must either correct or complete it.
- You can ask to remove your name from marketing lists.