The Credit Bureaus Are on Your Side

April 15, 2021

Life before the credit bureaus

When people applied for financing in the past, individual bank workers used fragmented credit details to determine who they wanted to approve and who they would deny. If you guessed that this system was flawed, you’d be right. Because the process was done largely manually, it opened the door to inconsistencies and delays in the decision-making process.

Over the years, however, three major credit reporting agencies began to emerge in the United States. Slowly, these companies began to buy out competitors and consolidate the credit information on U.S. consumers across national databases. Between this consolidation and the regulation of the credit reporting industry beginning in the early 1970s, large strides of improvement began.

Credit bureaus make it easier to borrow money

Yes, you read that right. Because of credit reports borrowing money has become really easy. Case in point, you can walk into an auto dealership and a few hours later drive off the lot with a financed car without ever talking to a lender. Each of the major credit bureaus maintains credit files on around 220 million consumers, and even though you didn’t give overtly written permission for them to store your information, there are many ways the credit bureaus help consumers.

For example, the credit bureaus:

Store your credit history and sell it to lenders to use in credit granting decisions. If you work to earn good credit history, this information can help you obtain credit from lenders that don’t know you and with whom you’ve never applied in the past. And, a good credit report means really inexpensive money.
Studies indicate credit reports are extremely accurate and the dispute process works. Both the Federal Trade Commission and the Policy and Economic Research Counsel performed credit file accuracy studies that indicated credit reports with meaningful errors are rare. The studies indicated that between 2% and 2.2% of consumers who participated in the studies had credit report errors that, if left uncorrected, could result in a higher price for credit. And, the FTC study indicated consumers who dispute information are satisfied with the results of their disputes 95% of the time.

Provide access to your credit information. The Fair Credit Reporting Act (FCRA) makes each credit bureau make available to you a free credit report once every 12 months at AnnualCreditReport.com. The credit bureaus are voluntarily offering free credit report access once a week in response to the coronavirus pandemic through at least April 2022. This was their choice. Nobody forced them to do this.

Credit reports can contain errors

Every month each of the credit bureaus receives data on over 200 million people from roughly 11,000 different companies. There is always room for error when you’re dealing with the massive amount of information that flows to and from the credit bureaus on a monthly basis.

As such, when an incorrect item ends up on your credit report, it might not be the fault of a credit-reporting agency. In fact, credit mistakes can be caused by the company that supplied the information to the credit bureaus in the first place, known as the data furnisher. For example, if ABC Bank sends incorrect information to a credit bureau, is it really the credit bureau’s fault when it ends up on your credit reports?

Regardless of why it happened, when credit errors happen to you, you or someone on your behalf has the right to submit disputes to the credit reporting agencies. Each credit bureau that receives your dispute will open an investigation on your behalf and correct the error within 30 days.

Bottom line

Instead of seeing the credit bureaus as the enemy, learn how you can work to earn the best credit possible. When you have good credit reports it can pay off in big ways. Cheaper money, more competitive terms, deposit requirements waived, and less expensive insurance premiums are all ways you benefit from solid credit reports.