A credit bureau is a data collection agency that gathers account information from various creditors and provides that information to a consumer reporting agency in the United States, a credit reference agency in the United Kingdom, a credit reporting body in Australia, a credit information company (CIC) in India, Special Accessing Entity in the Philippines, and also to private lenders. It is not the same as a credit rating agency.
A Consumer Reporting Agency is an organization providing information on individuals' borrowing and bill-paying habits. Credit information such as a person’s previous loan performance is a powerful tool to predict his or her future behavior. Such credit information institutions reduce the effect of asymmetric information between borrowers and lenders, and alleviate problems of adverse selection and moral hazard. For example, adequate credit information could facilitate lenders in screening and monitoring borrowers as well as avoiding giving loans to high risk individuals. This helps lenders assess credit worthiness, the ability to pay back a loan, and can affect the interest rate and other terms of a loan. Interest rates are not the same for everyone, but instead can be based on risk-based pricing, a form of price discrimination based on the different expected risks of different borrowers, as set out in their credit rating. Consumers with poor credit repayment histories or court adjudicated debt obligations like tax liens or bankruptcies will pay a higher annual interest rate than consumers who don't have these factors. Additionally, decision-makers in areas unrelated to consumer credit, including employment screening and underwriting of property and casualty insurance, increasingly depend on credit records, as studies have shown that such records have predictive value. At the same time, consumers also benefit from a good credit information system because it reduces the effect of credit monopoly from banks and provides incentives for borrowers to repay their loans on time.
In the U.S., consumer reporting agencies collect and aggregate personal information, financial data, and alternative data on individuals from a variety of sources called data furnishers with which the reporting agencies have a relationship. Data furnishers are typically creditors, lenders, utilities, debt collection agencies (credit bureaus) and the courts (i.e. public records) that a consumer has had a relationship or experience with. Data furnishers report their payment experience with the consumer to the credit reporting agencies. The data provided by the furnishers as well as collected by the bureaus are then aggregated into the consumer reporting agency's data repository or files. The resulting information is made available on request to customers of the consumer reporting agencies' for the purposes of credit risk assessment, credit scoring or for other purposes such as employment consideration or leasing an apartment. Given the large number of consumer borrowers, these credit scores tend to be mechanistic. To simplify the analytical process for their customers, the different consumer reporting agencies can apply a mathematical algorithm to provide a score the customer can use to more rapidly assess the likelihood that an individual will repay a particular debt given the frequency that other individuals in similar situations have defaulted. Most consumer welfare advocates advise individuals to review their credit reports at least once a year to ensure they are accurate.
In addition to providing credit information, these services have become authoritative sources of identity information against which people can be verified using an identity verification service and knowledge-based authentication.
The establishment of Credit Information Bureau (India) Limited (CIBIL), India's first Credit Information Bureau, is an effort made by the Government of India and the Reserve Bank of India to improve the functionality and stability of the Indian financial system by containing non-performing assets (NPAs) while improving credit grantors' portfolio quality.
CIBIL was promoted by State Bank of India (SBI), Housing Development Finance Corporation (HDFC), Dun & Bradstreet Information Services India Private Limited (D&B) and TransUnion International Inc. (TransUnion) to provide comprehensive credit information by collecting, collating and disseminating credit information, pertaining to both commercial and consumer borrowers, to a closed user group of members.
With two other major credit bureau coming to India in 2010 (Equifax and Experian) the Credit Environment is changing really fast and the importance of credit rating is being felt across length and breadth of the country.
Around the same time, RBI also granted operating license to CRIF High Mark Credit Information Services - the only start-up in this oligopoly. High Mark launched India's first micro finance bureau in early 2011 & today operates the world's largest micro finance bureau besides offering traditional bureau services for the Retail lending industry.
The Electronic Credit Information Bureau (CIB) was established by the State Bank of Pakistan (SBP) in December, 1992. Under section 25(A) of the Banking Companies Ordinance (BCO), 1962, the SBP mandates that all financial institutions in Pakistan including banks, developmental financial institutions (DFIs) and micro finance banks (MFBs) are required to use the eCIB software for monitoring credit reports. SBP controls updates to the database, updates the reports and monitors the software. All member financial institutions are required to submit entire borrowers' records online to eCIB every month within two weeks after the end of the month.
Aquitas Information Services (AISL) under the brand name TASDEEQ is the first licensed private Credit Bureau in Pakistan.
Credit Reference AgenciesEdit
Most banks and other credit-granting organisations subscribe to one or more of these organisations to ensure the quality of their lending. This includes companies who sell goods or services on credit such as credit card issuers, utility companies and store card issuers. Subscribing organisations are expected to provide relevant data to maintain the common data pool.
Credit reference agencies are bound by the Data Protection Act 2018, which requires that data relating to identifiable individuals must be accurate, relevant, held for a proper purpose and not out-of-date, and gives individuals the legal right to access data held on them. Credit agencies are therefore required under law to provide an individual with a copy of their consumer credit report upon request. Most agencies also provide online services for ongoing access to reports.
Consumer Credit Act (1974)Edit
The activities of Credit Reference Agencies are governed by the Consumer Credit Act 1974.
In the United States, there is no legal term for a credit bureau under the federal Fair Credit Reporting Act (FCRA). A consumer reporting agency is often abbreviated in the industry as CRA.
In the United States, key consumer reporting agency consumer protections and general rules or governing guidelines for both the consumer reporting agencies and data furnishers are the federal Fair Credit Reporting Act (FCRA), Fair and Accurate Credit Transactions Act (FACTA), Fair Credit Billing Act (FCBA), and Regulation B.
Two government bodies share responsibility for the oversight of consumer reporting agencies and those that furnish data to them. The Federal Trade Commission (FTC) has oversight for the consumer reporting agencies. The Office of the Comptroller of the Currency (OCC) charters, regulates, and supervises all national banks with regard to the data they furnish consumer reporting agencies.
Most U.S. consumer credit information is collected and kept by the four national traditional consumer reporting agencies: Experian (formerly TRW Information Systems & Services and the CCN Group), Equifax, TransUnion, and Innovis (which was purchased from First Data Corporation in 1999 by CBC Companies). These organizations are for-profit businesses and possess no government affiliation. Though they are competitors, they are members of a trade organization called the Consumer Data Industry Association (CDIA) to establish reporting standards and lobby on behalf of their industry issues in Washington. Current reporting standards accepted by the four U.S. CRAs are Metro and Metro2. The Metro2 standard is defined in the annual CDIA publication, the Credit Reporting Resource Guide. Consumers are entitled to a free annual credit report from each of the three nationwide consumer reporting agencies, Equifax, Experian and TransUnion. Consumers can go to annualcreditreport.com, the Internet site maintained by the three companies, to get their free report.
There are dozens of other similar information collection and reporting firms that analyze and sell information about consumers for other purposes, including those who aggregate multiple credit data sources and provide lenders with customized analytical tools. Furthermore, there are also non-traditional credit reporting agencies.
PRBC (Payment Reporting Builds Credit, Inc.) is a national alternative credit bureau. Incorporated in March 2002, PRBC enables consumers to self-enroll and build a positive credit file by reporting their on-time payments (such as rent, utilities, cable, and phone) that are not automatically reported to the three traditional credit bureaus.
In the U.S., there are six business or commercial bureau repositories (in alphabetical order): Cortera, Dun & Bradstreet, Experian Business, Equifax Commercial, PayNet, and Southeastern Association of Credit Management (SACM). While not a credit reporting agency, Small Business Financial Exchange, Inc. (SBFE) is a not for profit trade association for small business lenders from all types of industries. SBFE gathers and protects small business payment data for its Members to help build a true and accurate picture of small business then facilitates the exchange of that data to specific business credit reporting agencies that have a Certified Vendor licensing agreement with SBFE. SBFE only allows business credit reporting agencies to license its Member’s data for risk management purposes, marketing use of the data is not allowed by SBFE.
Tort liability for business defamationEdit
In the case of Dun & Bradstreet, Inc. v. Greenmoss Builders, Inc., 472 U.S. 749 (1985) the U.S. Supreme Court held that a consumer reporting agency may be liable if it was careless in reporting an impending or past bankruptcy filing of a business that is not a public figure.
Iran Credit Scoring (ICS) Company is the sole licensed national consumer reporting agency offering credit information services to respective members in Iran. ICS is a private equity company established in 2006, by all Iranian banks (private and public banks) and other financial institutions such as leasing and insurance companies, operating in the Islamic Republic of Iran within the context of the current banking act and regulations issued by Iran Ministry of economic Affairs and Finance and Central Bank of Iran.
The main Objective of ICS is to help credit providers make improved lending decisions quickly and more objectively. To achieve this, ICS intends to aggregate credit related information among participating members to provide credit providers with a more complete risk profile of the customer (natural persons, unincorporated entities, corporate entities or any other entity).
The ICS tend to aggregates credit related information among participating members to provide the credit providers with a more complete risk profile of the customer. Participating members disclose credit related information to and obtain information from the CRA to assess the credit worthiness of their existing and prospective customers, which enhances the credit providers risk assessment capabilities to determine whether or not the customer is likely to repay.
In 1981, Ferdinand Marcos, then President of the Republic of the Philippines, issued a Letter of Instructions No. 1107 mandating the Central Bank of the Philippines to analyze the probability of establishing and funding the operation of a credit bureau in the Philippines due to the disturbing increase of failures on corporate borrowers.
In adherence to the order, Central Bank of the Philippines organized the Credit Information Exchange System under the department of Loans and Credit. It was created to engage in collating, developing and analyzing credit information on individuals, institutions, business entities and other business concerns. It aims to develop and undertake the continuing exchange of credit data within its members and subscribers and to provide an impartial source of credit information for debtors, creditors and the public. This will also cooperate and guide government agencies in their credit information requirements.
On April 14, 1982, Credit Information Bureau, Inc. was incorporated as a non-stock, non-profit corporation. (See: Presidential Decree No. 1941 )
In 1982, Credit Information Bureau, Inc. was established through the power of Presidential decree 1941 and created under Central Bank of the Philippines, now Bangko Sentral ng Pilipinas (BSP) department of Loans and Credit, the Securities and Exchange Commission (SEC) and the Financial Executives Institute of the Philippines (FINEX); to initiate a credit information exchange system in the country.
In 1997, Credit Information Bureau, Inc. was incorporated and transformed into a private entity and became CIBI Information, Inc.
In 2008, Republic Act No. 9510 also known as Credit Information System Act of 2008 gave way to the creation of Credit Information Corporation as the new government-owned and controlled credit registry in the country.
In 2011, TransUnion Information Solutions, Inc. begins operations in the Philippines, partnering with Bank of the Philippine Islands (BPI), Banco de Oro Unibank (BDO), Metrobank Card Corporation, HSBC and Citibank Philippines to launch the country's first comprehensive, international private credit bureau.
Contributing TransUnion members are given access to credit information in the form of a credit report, consumer bureau score and additional value-added services. TransUnion Philippines aims to strengthen the Philippine financial system through increased access to credit for borrowers and reduced risk to lenders.
The Saudi Credit Bureau (SIMAH) is the first and sole licensed national credit bureau offering consumer and commercial credit information services to respective members in the Kingdom of Saudi Arabia. It was established in 2002 and began operating on the ground in 2004 under the supervisory umbrella of Saudi Arabian Monetary Agency (SAMA).
The idea goes back into 1998 when national commercial banks and SAMA thought of establishing a Saudi credit bureau offering consumer and commercial information. Meetings were held for this purpose and officials were assigned to coordinate with the World Bank to consider existing international experiences for some countries to establish a credit bureau based on methodological and knowledge approaches to contribute to the Saudi national economy.
SIMAH was then established to operate within the context of the current banking act and regulations issued by SAMA.
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In the United States, a percentage of credit reports provided by consumer reporting agencies contain inaccuracies. According to the U.S. General Accounting Office (GAO), common causes of errors broadly fall into one of two categories: inclusion of incorrect information and exclusion of correct information. Reasons for the inaccuracies include consumers providing inaccurate information to the consumer reporting agencies; incorrect or incomplete data input by furnishers, or failing to provide data to the consumer reporting agency; and incorrect or incomplete data (or data applied to the wrong consumer) by the consumer reporting agency. According to Avery, Calem, and Canner in Credit Report Accuracy and Access to Credit, "the parties that bear the costs of correcting errors or providing more timely and complete information [data furnishers and consumer reporting agencies] may not receive much benefit from the improvement in accuracy."
The formula to calculate consumer credit scores by a consumer reporting agency is proprietary and considered a trade secret of the agency in the United States.
Some consumer reporting agencies in the United States provide two credit scores - an 'educational' score to the consumer and a customary FICO-like score to the lender or business. Liz Weston writes that some consumer advocates refer to these other [educational] credit scores as "FAKO scores" (a play on acronym of FICO). In consideration of the fact that algorithms which rate people are used in a discriminatory fashion to deny people legal rights (employment, insurance, credit, etc.), those very algorithms act as law. The law says that if one does "this" or if one "does" that, then they will be afforded different treatment and opportunities. What needs to be done though remains a secret. Therefore, people are called on to abide by a secret law. At least two things need to be examined: First is that the operation of a more general "chilling effect" that imposing a non disclosed law may have and; Secondly the social effects of discrimination, which take an entirely new light in the context of no longer discriminating against race creed color age or religion, but on the basis of a number, a number which has been assigned to all members of society reflecting information about that person which is unknown. Accordingly, there can be no definition at present of what information credit repositories collect or even what the use of that information is or what it reflects. These questions can only be answered if the algorithms were publicized and expert statisticians were permitted to examine them and improve on the intent of the model, which intent is also undisclosed.
According to David Szwak, a partner in Bodenheimer, Jones & Szwak which specializes in insurance law and litigation against consumer reporting agencies, some consumer reporting agencies in the United States maintain a VIP database of special consumers such as members of Congress, judges, actors and celebrities. The VIP database is specially administered by the bureau, which ensures the credit report of the consumer is accurate and not negatively handled. The database exists because individuals in the VIP database could cause significant problems for the bureaus, including negative publicity and legislative action which could adversely affect the industry. So far an economic model to describe this industry has not been attempted, while the fundamentals are counter intuitive to any market known, since other industries (finance, banking, insurance) sponsor consumer reporting agencies to process information while consumers pay CRAs to receive that information. The utility of the consumer is hard to calculate since the consumer is given no recourse to correct mistakes processed about them, hence the dynamics of this triangle involving consumers, credit reporters, and sponsoring industries remain undefined.
Business Credit Reporting AgenciesEdit
Commercial credit reporting and scoring bureaus also exist and can be used to evaluate the likelihood of a business paying creditors. Examples of commercial credit reports are the Paydex score from Dun & Bradstreet, the Risk Rating from Creditsafe, the Experian Intelliscore, the CPR Score from Cortera, the GCS score from Global Credit Services, and the CIC Score and NACM National Trade Credit Report from the National Association of Credit Management. TransUnion, Equifax, and Rapid Ratings International are also examples of commercial credit reporting agencies.
List of credit reporting agenciesEdit
- "Credit Bureau: Definition and comparison to credit registries". The World Bank.
- O'Sullivan, Arthur; Sheffrin, Steven M. (2003). Economics: Principles in Action. Upper Saddle River, New Jersey 07458: Pearson Prentice Hall. p. 512. ISBN 0-13-063085-3.
- Edited by Margaret Miller. (2003). Credit Reporting Systems and the International Economy. Cambridge, Massachusetts: MIT Press
- Avery, Robert B.; Calem, Paul S.; Canner, Glenn B. (2004). Credit Report Accuracy and Access to Credit (PDF). Federal Reserve Bulletin, Summer 2004. Washington, D.C. 20551: U.S. Federal Reserve. p. 26.
- 6 Edited by Margaret Miller. (2003). Credit Reporting Systems and the International Economy. Cambridge, Massachusetts: MIT Press
- "India to get three new credit data bureaus". Live Mint. 1 June 2009.
- Experian Statutory Credit Report
- Equifax Statutory Credit Report
- Callcredit Statutory Credit Report
- "How to check your credit report". The Money Advice Service. Retrieved 19 January 2019.
- David Baldock (Creator), James Scurlock (Directory) (March 10, 2006). Maxed Out: Hard Times, Easy Credit and the Era of Predatory Lenders (Television Documentary). Mainstage Productions. Event occurs at 43:38.
- Hillman, Richard J. (July 31, 2003), "Statement for the Record Before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate", Limited Information Exists On Extent of Credit Report Errors and Their Implications for Consumers (PDF), U.S. General Accounting Office, p. 22, GAO-03-1036T
- AGO Blog Moderator (December 18, 2007). "New credit score formula on horizon". Washington State Office of the Attorney General. Retrieved January 11, 2012.
- Weston, Liz. "Credit bureau move creates 'secret' scores". MSN. Retrieved January 11, 2012.
- David Baldock (Creator), James Scurlock (Directory) (March 10, 2006). Maxed Out: Hard Times, Easy Credit and the Era of Predatory Lenders (Television Documentary). Mainstage Productions. Event occurs at 1:22:01.
- David Baldock (Creator), James Scurlock (Directory) (March 10, 2006). Maxed Out: Hard Times, Easy Credit and the Era of Predatory Lenders (Television Documentary). Mainstage Productions. Event occurs at 1:22:30.
- Garrett, Joseph C. (20 January 2012). "Why Is It Important To Know My Credit Score?". Know My Credit Score. Retrieved 21 February 2012.
- Garrett, Joseph C. (20 January 2012). "How well do you know your customers, suppliers, competitors, and potential customers?". Creditsafe. Retrieved 7 November 2017.
- World Bank GFDR Report
- Federal Trade Commission Governmental Page on Free Credit Reports
- Federal Trade Commission Governmental Page on FCRA and consumer rights
- OCC - Office of the Comptroller of the Currency
- State Bank of Pakistan FAQs about Credit Bureau
- List of UK Credit Reporting Agencies
- Consumer Financial Protection Bureau (CFPB) List of Consumer Reporting Agencies (CRAs) as of January 2015