#3 credit bureaus
CONSUMER CREDIT BUREAUS TODAY
The three major consumer credit bureaus in the U.S. are affiliated with the Associated Credit Bureaus, Inc. This international trade association, founded in 1906, provides its members with fraud prevention and risk management products, credit and mortgage reports, tenant and employment screening services, check fraud and verification services, and collection services. The Associated Credit Bureaus, Inc. represents the consumer credit reporting information industry before state and federal legislators. It also represents the industry before the media in consumer credit reporting matters. Over 500 American credit reporting agencies, mortgage reporting companies, collection services, and tenant screening and employment reporting companies are members.
Consumer credit bureaus are important and growing because some one billion credit cards are in use in the United States today. A similar number of consumer credit reports are issued annually in the United States. Two billion pieces of data are entered monthly into credit records. Each of the three major consumer credit reporting systems Equifax, Experian, and Trans Union maintains 190 million credit files, which are used by independent credit reporting agencies across the United States.
The power of credit bureaus grew as they became the primary source through which a consumer’s creditworthiness was judged. If an individual’s credit information with a bureau was incorrect, she was at risk of being denied credit, insurance, or even employment based on the erroneous information. Worse yet, the individual may not have known why she was denied. The credit scoring systems used by credit bureaus was a closely held secret.
In the 1990s and early 2000s the country saw a rise in consumer fraud and in particular, identity theft. The victims of identity theft often find themselves struggling with credit bureaus to repair their credit scores in the wake of the crime. This effort is made more difficult by the secrecy of the credit scoring process. A flurry of state and federal legislation has been passed, aimed at protecting the privacy of personal data while also granting consumers access to their own credit information. In late 2003 the Fair and Accurate Credit Transactions Act was passed. This law is designed to improve the quality of credit information and protect consumers from identity theft schemes. Some of the provisions of the law include:
- Giving Americans the right to their credit report free of charge every year. Consumers will be able to review a free report every year for unauthorized activity, including activity that might be the result of identity theft.
- Helping prevent identity theft by requiring merchants to leave all but the last five digits of a credit card number off store receipts.
- Creating a national system of fraud detection to make identity thieves more likely to be caught. Previously, victims would have to make phone calls to all of their credit card companies and three major credit rating agencies to alert them to the crime. Now consumers will only need to make one call to receive advice, set off a nationwide fraud alert, and protect their credit standing.
- Establishing a nationwide system of fraud alerts for consumers to place on their credit files. Credit reporting agencies that receive such alerts from customers will now be obliged to follow procedures to ensure that any future requests are by the true consumer, not an identity thief posing as the consumer.
- Requiring regulators to devise a list of red flag indicators of identity theft, drawn from the patterns and practices of identity thieves.
- Requiring lenders and credit agencies to take action before a victim even knows a crime has occurred. With oversight by bank regulators, the credit agencies will draw up a set of guidelines to identify patterns common to identity theft, and develop methods to stop it.
THE THREE MAJOR CONSUMER CREDIT BUREAUS
Equifax serves the financial services, retail, credit card, telecommunications/utilities, transportation, information technology, and health care industries, as well as government. Global operations include consumer and commercial credit information services, payment services, software, modeling, analytics, consulting and direct-to-consumer services. Equifax provides services and systems that help grant credit, authorize and process credit card and check transactions, manage receivables, authenticate, identify and manage digital certificates, predict consumer behavior, market products, and manage risk. Equifax serves the U.S. Chile, Argentina, U.K. Spain, Portugal, Canada, Peru, El Salvador, and Brazil.
According to its mission statement, Experian uses the power of information to help its clients target prospective customers, manage existing customer relationships, and identify opportunities for profitable growth. Through its Web-based products and services, Experian enables clients to conduct secure and profitable e-commerce. Experian is a subsidiary of The Great Universal Stores PLC and has headquarters in Nottingham, U.K. and Orange, California. Its 12,000 employees support clients in over 50 countries and annual company sales are $1.5 billion.
Trans Union is the third primary source of consumer credit information and also offers risk and portfolio management services. They serve a broad range of industries that routinely evaluate credit risk or verify information about their customers, which includes financial and banking services, insurance agencies, retailers, collection agencies, communication and energy companies, and hospitals. Trans Union operates nationwide through a network of offices and independent credit bureaus. They have many subsidiaries and divisions in the U.S. and abroad.
COMMERCIAL CREDIT BUREAUS
The Internet has created a number of changes in the commercial credit reporting business. Electronic commerce and online business-to-business (B2B) transactions have expanded the need for commercial credit checks to include small businesses and foreign firms. In the meantime, the instantaneous transfer of information over the Internet has caused client companies to expand their expectations about the manner in which they receive credit reports. “With more companies doing business with smaller firms and companies overseas, obtaining credit information on those businesses is more important today than ever,” Demby noted. “Customers are demanding more information faster, and in a format that allows them to make rapid-fire decisions about whether or not to grant credit.”
The changing demands of client companies has increased competition among commercial credit bureaus. Many new players have sprung up online, where they are collecting newly available data and distributing it at a lower cost than traditional reporting firms. For example, CreditRiskMonitor.com, established in 1997, is an Internet-based credit reporting agency that provides up-to-the-minute data and credit analysis on 35,000 public U.S. companies worldwide.
In addition to increased competition from Internet-based reporting agencies, commercial credit bureaus face several new business trends in the twenty-first century. For example, more commercial credit reporting agencies are beginning to offer information on small businesses, which represent an increasing share of the overall market. Consumer credit expert Experian has begun offering a commercial credit service that combines a small business’s financial information with personal information about the small business owner to create a risk score. Another emerging trend involves providing credit information in real time in order to assist clients in making quick decisions about whether or not to extend credit. Instead of providing a mass of financial information, many commercial credit bureaus are moving toward evaluating the information in advance and providing clients with credit scores.
Bennett, Andrea. “Credit Scores Are Due to Go Public.” Money. 1 August 2000.
“Check Your Credit.” Phoenix Business Journal. 22 September 2000.
Demby, Elayne Robertson. “Getting a Line on Lending.” Collections and Credit Risk. January 2001.
Goodman, Jordan Elliot. Everyone’s Money Book on Credit. Dearborn Trade Publishing, 2002.
Hill, Sidney, Jr. “Hungry for Credit Data?” Collections and Credit Risk. 31 August 2000.
The White House Fact Sheet: President Bush Signs the Fair and Accurate Credit Transactions Act of 2003. Available from http://www.whitehouse.gov/news/releases/2003/12/20031204-3.html. Retrieved on 4 January 2006.