An agency that researches and collects individual credit information and sells it for a fee to creditors so they can make a decision on granting loans. Typical clients include banks, mortgage lenders, credit card companies and other financing companies. Also commonly referred to as consumer reporting agency or credit reporting agency.
A credit bureau (U.S.), or credit reference agency (UK) is a company that assigns credit scores to individual borrowers. A credit score measures credit worthiness, the ability to pay back a loan, and affects the interest rate applied to loans. Interest rates are not the same for everyone, but instead are based on risk based pricing, a form of price discrimination based on the different expected costs of different borrowers, as set out in their credit rating.
Credit bureaus collect and collate personal financial data on individuals, from financial institutions with which they have a relationship. The data are aggregated and the resulting information is made available on request to contributing companies for the purposes of credit assessment and credit scoring. Given the large number of consumer borrowers, these credit scores tend to be mechanistic. In other words, the different credit bureaus collect data from a variety of sources and then apply a mathematical algorythm to assess the likelihood that an individual will repay a given debt given the frequency that other individuals in similar situations have defaulted. Given the mechanical nature of this calculation, an individual's credit score is highly dependent on the information input into the algorythm. If a credit bureau has collected inaccurate or misleading data, an individual's credit score could be adversely effected as a result. Consequently, most consumer welfare advocates advise individuals to review their credit reports at least once per year, in order to ensure that the reports are accurate. |