How Credit Bureaus Work

Credit bureaus are information warehouses. They gather information about you and millions of other consumers and sell that information to lenders and others who want to know about your borrowing behavior.

Whenever you apply for a loan or line of credit, lenders want to know what the chances are that you’ll repay the money. To help them figure that out, they look at your history of borrowing: Have you borrowed money in the past, and did you repay those loans? Credit bureaus have the information that lenders use to make those decisions.

What Credit Bureaus Do

Credit bureaus function as databases of information about you. After collecting it, they use that information to create a credit score, which most lenders use as criteria for approving a line of credit. The raw data, before it's used to create a credit score, is known as your credit reports.

Your credit reports show what the credit bureaus know about you, and you’re allowed to view these reports for free every year.

Credit bureaus simply gather and sell data. They do not decide whether or not your loan will be approved. For example, when you apply for a loan, your bank might want to get your credit score. The credit scoring model (basically a computer program) is designed by FICO, and the data might come from Experian, one of the most popular credit bureaus. Your bank will decide what scores are acceptable to them—making the ultimate yes or no decision—using the data it gets from the credit bureau.

Types of Information Credit Bureaus Collect

There are numerous credit bureaus, and each one works differently. However, most big lending decisions are based on information stored at the three major credit reporting companies: Equifax, TransUnion, and Experian.

1. Personal Information

Personal information helps the credit reporting companies to identify you and distinguish you from other borrowers. That usually includes:

• Name, address, Social Security Number, date of birth
• Previous addresses
• Employment history

2. Public Records

Bankruptcies are the only public record to appear in credit reports, as of spring 2020. To comply with stricter reporting standards under the National Consumer Assistance Plan, by April 2018 the credit reporting companies purged all tax liens and civil judgments, including foreclosures, evictions, and wage garnishments. 

3. Inquiries

Every time somebody asks the credit reporting companies about your credit, they make a record of it. These inquiries stay on your credit report for about two years. They may lower your credit score by a few points at first, but that usually only lasts for less than a year.

4. Tradelines

Tradelines are records of your loans and lines of credit, which is perhaps the most significant information collected by the credit reporting companies.

They detail the vital characteristics of each loan. They may go by a variety of names depending on the credit reporting company, but the general characteristics are:

• Type of loan
• Creditor name
• Date opened
• Date of last activity
• Loan balance
• Maximum balance
• Account status
• Comments
• Your liability on the account
• Amount past due
• Minimum payment due
• Amount of your last payment

Where the Information Comes From

Credit bureaus get information from several sources, and then they package and sell that information to others:

• Lenders: Much of the data comes from lenders. If you’ve borrowed money in the past, there’s a good chance that your lender reported that loan to one or more credit bureaus. Some lenders don’t report your borrowing activity, but most do. If you’re trying to build credit because you don’t have a credit history, or you need to rebuild a troubled history, it’s best to work with lenders that report to credit bureaus.
• Public records: Credit bureaus also get information from public records. For example, they might want to know if you’ve ever filed for bankruptcy. Lenders could also look up that information, but it’s easier for them to buy it from a credit bureau.
• Other sources: Other sources of information are increasingly used to create “alternative” credit reports. Bills you pay for utilities, memberships, and more can sometimes affect your ability to borrow.

Information They Don't Collect

The major credit reporting companies do not collect information on the following:

• Bounced checks
• Race
• Ethnicity
• Gender
• Political views
• Income

Some information is kept at the credit reporting companies, but not displayed on your credit reports. Negative items that have been closed out more than seven years ago generally fall into this category.