The credit reporting system

It's possible that every time you apply for credit, use your credit, repay what you borrowed, or don't repay, your activity is recorded, communicated, collated, and stored in the data banks of a national credit reporting system. This system is crucial to both borrowers and lenders. Since most lenders don't personally know their borrowers, they depend on the bureaus to provide reliable, independent verification of your creditworthiness. And with the aid of computer technology, many credit checks can now occur in an instant.

Here is how it works.

Information goes in
When you put in an application. Every time you apply for employment, insurance, or credit, you give someone permission to receive a credit report on you. Inquiries are usually directed to one or more of the three national credit bureaus. The inquiry itself becomes useful information (because it's a crcdit-related activity) and will appear on any subsequent report for at least six months-and usually two years.

When businesses send in reports. Typically, any business that extends you credit or sells you insurance also sends the bureaus a monthly update on how well you (and their othere customers) are-keeping up the, payments. It's an imperfect system. Not all businesses send reports regularly, and some don't send reporto all the national credit bureaus.

Public records. Any tax lien, bankruptcy, court judgement, or other legal event that has an impact on your future ability to repay-or the perception of your willingness to repay-goes into your file.

National credit bureaus. Credit reporting bureaus collect information, collate it, and keep everything in their vast computer databases. There is no actual "report" stored on you. Instead, when there's an inquiry, the bureau draws all of your data from the computer and creates the report.

Reports go out
Under the Fair Credit reporting act, no one can see your credit report except you or someone to whom you’ve given written permission an application, for example).

Although all three national bureaus, share information, they're still in competion for customers: Businesses pay to be members so they can have the right to order credit reports. Bureaus are very stringent about the legitimacy of their members, and the law is also strict on privacy. Anyone who obtains a credit report under false pretenses may be fined and jailed.

The Equal Credit Opportunity Act protects all consumers against decisions based on personal biases by restricting what bureaus can report. They can't reveal race, religion, or criminal records, but they can reveal court judgments since those could affect your ability to repay.
In the end, your application for credit is either approved or rejected based on the lender's assessment of your creditworthiness. A rejection won't be reported or appear on a later credit report.

The "Big Three" bureaus that control the national reporting system are:

• Equifax Credit Information Services
• Trans Union Corporation
• TRW Information Services – is also known as Experian

Since each bureau may have different information, you may have three credit histories, not one.

More Facts

• Local credit bureaus. There are several thousand local bureaus. Most receive their data from the three national bureaus, although they may have more local credit information on you in their databases.

• Just the facts. The reporting system is essentially impartial and nonjudgmental. Reports show facts about your credit history. Some bureaus, however, also provide business customers with 'risk scores" (and leave them out of reports sent to you). These scores are based on the facts in your report and indicate, among other things, the likelihood of your going into bankruptcy or of paying chronically late.