A Simple Guide to Understanding Credit Bureaus

Contrary to the prevailing narrative, there are no official credit bureaus.  The so-called credit bureaus are really for-profit credit reporting companies who collect, aggregate and profit from the personal data of millions of consumers.  Any perception of government status is false.  There are no laws which mandate the existence of credit reports or credit reporting companies.

The three biggest credit reporting companies are TransUnion, Equifax and Experian.  These companies obtain your demographic data and credit history from your creditors such as banks, credit unions, retailers or other lenders.  A monthly record of your finances is stored in their databases and sold to your potential creditors, landlords, employers, etc. in the form of a credit report and credit score.

TransUnion

The smallest of the big three credit bureaus, TransUnion made just over $2.6 billion selling consumer data and scores in 2019.  TransUnion began in 1986 as the subsidiary of the Union Tank Car Company, a railroad leasing company.  Today TransUnion collects data on over one billion individual consumers and sells credit reports and scores to over 65,000 businesses.

Equifax

Equifax made almost a billion more than TransUnion in 2019 with revenues just over $3.5 billion.  Equifax was originally founded in 1899 as The Retail Credit Company (RCC). The RCC specialized in furnishing data to insurance companies to identify risk and assign premium amounts for people applying for new life, auto, fire, and medical insurance policies.  Today Equifax primarily operates by selling consumer credit and insurance reports to businesses such as banks, retailers, insurance firms and others.

Experian

Experian was founded in 1803 as a group of London tailors who collected and shared information on customers who failed to pay.  The company incorporated in the United States in 1968 and was known as TRW Information Systems and Services.  The name Experian was adopted after the company was sold to private equity firms in 1996.  Experian made over $4.8 billion in 2019.

Credit Bureaus Are Not Your Friends

Understanding credit bureaus starts with examining their shady history. All three of the major credit reporting companies have been the subject of extensive litigation.  The Fair Credit Reporting Act (FCRA) was enacted in 1970 in response to growing allegations of data misuse, fraud and lack of oversight.  Prior to 1970 consumers were held hostage by credit reporting companies and had no official rights to confidentiality, data accuracy and privacy.

A few of the more notable lawsuits include the following:

• TransUnion has been the subject of several major lawsuits alleging inaccurate credit reporting.  In 2017 TransUnion was ordered to pay 60 million dollars to consumers who were falsely reported on a government list of terrorists and security threats.
• In 2005 Experian accepted a settlement with the Federal Trade Commission (FTC) over charges of deceptive advertising practices.  In 2008 Experian was fined $3,000,000 for inaccurate credit scores and in 2015 they announced a data breach exposing the personal data of as many as 15 million people over a 2-year period.
• When Equifax, formally known as Retail Credit Company, digitized its records in 1970, authorities discovered the company had expansive records on almost every aspect of people’s personal life including sexual relationships, marital troubles, and political activities.  Misuse of data and lack of oversight led to an investigation by the Federal Trade Commission (FTC) and resulted in the Fair Credit Reporting Act (FCRA).  There were even allegations that employees were rewarded for collecting derogatory information on consumers.  In 1970 the company name was changed to Equifax to improve its public image.

In 2003 the federal government again intervened and passed an amendment to the Fair Credit Reporting Act known as the Fair and Accurate Credit Transaction Act (FACTA).  This amendment mandated that upon request, credit reporting companies provide a free credit report once every twelve months. Prior to 2003, consumer had to pay TransUnion, Equifax and Experian to view their own data.

AnnualCreditReport.com is jointly operated by TransUnion, Equifax and Experian and allows consumer to access their credit report for free once every twelve months. 

Prior to 2003 consumers had no official rights related to fraud protection, identity theft and dispute resolution.  FACTA requires credit reporting companies to honor consumer requests for fraud alerts and to take measure to prevent identify theft by truncating sensitive data such as full credit card account numbers.

Notwithstanding the extensive litigation, credit report accuracy remains a major issue.  A 2015 study released by the Federal Trade Commission found that 23% of consumers where able to identify inaccurate information in their credit reports (source: FTC).

Given the credit bureaus history of poor data stewardship, I recommend taking full advantage of AnnualCreditReport.com by ordering and reviewing your credit reports annually.

Disputing Inaccurate Credit Reports

Under FCRA both the credit reporting agencies (companies that collect data) and the creditors (companies that provide the data) must take reasonable measures to investigate and correct credit report inaccuracies.

Be detailed and comprehensive in your credit report dispute.  Include copies of relevant documents and provide clear facts and a specific request for removal.  Remember, the credit reporting companies are mandated to investigate inaccurate credit reports, at a significant cost to their profit margins.   

When a credit report dispute is received, the following actions are required by credit reporting companies and creditors.

1. Investigate the dispute and review all relevant information, usually within 30 days.
2. Forward the investigation request and all relevant information to the creditor (the company that provided the inaccurate data).
3. If found to be inaccurate, creditors must notify all three of the major credit reporting companies of the outcome so the information can be corrected.
4. After the investigation is complete, the credit reporting company must provide the investigation results in writing along with a free copy of your credit report.

You can dispute inaccurate credit ratings through the following websites:

www.equifax.com/creditreportassistance

https://www.experian.com/disputes

https://dispute.transunion.com

You may also main your dispute to the following locations:

Equifax

P.O. Box 740256

Atlanta, GA 30374-0256

Experian

P.O. Box 9701

Allen, TX 75013

TransUnion

P.O. Box 2000

Chester, PA 19016