How Credit Reporting Agencies Work And What Are The Alternatives?

Last Updated: August 21, 2019
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Credit reporting agencies track your credit information in order to estimate your risk as a customer for potential lenders. How exactly do they work, what's the information they collect, how do they get this information, why having alternatives to the usual credit bureaus is so important and what are the best alternatives? Here's all you need to know

A credit reporting agency or credit bureau is one of the companies that keep track of your credit information. What they do with it, however, is sell it and pass it on to create a credit report.

They do a lot of work to compile all of that money and from there they provide a credit lender with information about whether you deserve the credit. That means they make the process a whole lot easier and faster for your potential lenders.

How Do Credit Bureaus Work?

The credit bureau gathers up all of the information about your credit. They not only collect all of your information but then organize it and then pass it out to anyone who needs it. They do this for any individual and any small businesses as well (though not larger businesses).

In the United States, you’ll find three main bureaus: Equifax, Experian & TransUnion. Each of these collects that information and creates a credit report out of it. That report includes a number of different factors. It shows your payment history, how much debt you have, what your maximum credit limit is and even who your creditors are. There’s a whole lot here when it comes to your potential to pay off debt.

Anyone that’s looking at giving you some form of credit will look at your credit report. Whether it’s a bank or credit card company or even a potential employer, they want to know you can be trusted.

Your credit report tells them how reliable you are when it comes to a loan, a job or even a rental property.

Keep in mind that not every credit bureau reports information the same way and it’s up to you to make sure that everything reported about you is accurate.

Please Note: A credit bureau doesn’t decide anything related to your credit, like your limits, your interest or your qualifications.

Information the Credit Bureaus Collect

These bureaus start collecting information as soon as you open your very first credit account.

They’ll collect everything from your repayment history and the credit you have to the credit you’re using to the debt you currently have. They also keep track of public records that can include repossessions, bankruptcy, tax liens and foreclosures.

There’s also information on your credit report that isn’t actually related to your credit. These are things like your address, current and previous, your employers, current and previous and your date of birth. These things are generally used to confirm that you are the one on the report or that information is being reported properly. They are not allowed to be used in your credit report however.

Where Does the Information Come From?

Banks and different types of businesses will report the information to the credit bureau. They can get information from anyone that you do business with. Those lenders and people that you do business with can report regularly. They talk about whether you’re paying on time and if you’ve ever been late or defaulted. They also talk about how much debt you owe.

On top of this they can pull public records. Things like your tax liens, bankruptcy and more can all be pulled directly from the court, either state or local. All of this can be added to your credit report.

When those credit reporting agencies collect your information they can sell it to other businesses. They have to only sell to those who have the right to see it. If you apply for credit you’re giving them valid right to look at the report you have. If someone wants to prescreen you to provide services they get to purchase your report as well. Keep in mind that you usually have to provide permission for an employer or even a landlord to look at your report.

If you’re looking for credit monitoring you will generally have to pay for it. Credit reporting agencies do pay for it, however.

Who Uses Your Data?

A bank or a credit card company can get your data from a credit bureau, but they’re not the only ones. Employers, insurance companies, debt collectors and even landlords could request your information. They want to know about your credit history and whether you’re actually doing everything that you should be when it comes to your credit.

Prescreening lists can be offered to banks and insurance companies so they can determine who would be a good fit for their product. They may request lists of people who have high balances and offer balance transfer cards, for example. If you’ve ever wondered, that’s how you get the preapproved offers or how you get unsolicited offers for refinancing, new cards or anything else.

Your Credit Report vs. Your Credit Score

If you’ve heard about your credit score and your credit report it’s important to balance the two out. Your credit score is created based on formulas based on your credit report. They’re not on your credit report though because that’s something separate. The Fair Isaac and Company creates a score that is used primarily by creditors. There are additional scoring methods out there though, so you may want to pay attention.

Your score is all about what your credit report says and it comes out as a 3 digit number. That number can range anywhere from 300 to 850, where you want to get the highest number possible.

Credit Bureau Alternatives 

Why Are Alternatives Important?

Alternatives to the traditional agencies are designed for those people who don’t have a lot of credit or those with no credit. As many as 45 million American adults, in 2015, which have no information on file or had very little information on file. That means these individuals, primarily lower-income individuals, did not have a credit score. This made it nearly impossible for them to qualify for the things that they might need like credit and loans.

Alternative reporting agencies make it possible to still determine the creditworthiness of individuals like these.

You’ll see PRBC most frequently, which lets people report their own information. These are things like rent, utilities, phone payments and insurance payments. That way, they can build up a positive file for other creditors. It can be undesirable for many people, but it’s definitely important for those who need these alternative bureaus.

Anyone who might be concerned about reporting to an alternative bureau should check the Consumer Financial Protection Bureau to find out more about these agencies.

Alternative Credit Bureaus

These alternatives are here just to make sure that there is some competition when it comes to the main bureaus. They’re all separate and private companies after all. That means they are going to work around each other.

With these bureaus you’re going to be given a creditworthiness rating based on different information. It’s all based on something other than credit reports and you’ll find options like:

  • Pay Rent, Build Credit (PRBC)
  • LexisNexis
  • SageStream
  • First American Credco
  • Innovis
  • Lenddo

They use records of bill paying to help create a rating for you and to determine your creditworthiness.

You’ll also be given a credit score based on this information, though their system is going to be different from the traditional credit bureaus. They will use the same information and criteria but you’re not going to get ratings from bills that report to traditional credit institutions. Keep in mind that the more recent the information is the more it’s going to impact.

Alternative Options vs. Traditional Credit Bureaus

When it comes to different bureaus you’re getting different types of information and data. Some of the alternative bureaus require you to apply, while others compile information based on public record. You may have to have more accounts in order to get a better history and a score. If you opt for organizations like PRBC you may not even have to self-report your bills because it’s done for you with CheckFree.

You’ll also see that placed like ID Analytics use Credit Optics, which is an FCRA compliant score. It uses all the information it can get from different industries and then forms a cross analysis. This helps provide the information that lenders and others are looking for about you.

Lenddo is a newer product, but it’s giving everyone scores in a totally unique way. It uses over 12,000 different points and analysis from everything from your social profile to your emails to decide whether you’re a good risk. This is considered the Archano Score and it’s an invention directly from the company. You won’t get ranked based on your payment history with this one.

What you’ll find is that these alternative bureaus just haven’t been tested enough. They haven’t been around long enough to see how well they do and that’s making it difficult to predict how creditworthy those who use them actually are.