How do credit bureaus work in Canada and the US?

June 4, 2008 8:09 PM

How do credit bureaus work in Canada and the US?

As far as I understand, there are several major credit reporting companies in Canada and the US. How do they keep the data in sync? Do credit bureaus share data between each other? Do people have to ask all the bureaus in a country what your credit score is? How are credit bureaus regulated, and why is it so hard to have credit information struck out, but relatively easy to have things added in?

posted by phyrewerx to work & money (4 answers total)

Credit reporting agencies do not share data among them and there is no attempt to keep information in your files in sync among multiple agencies. They simply accept reports from your creditors. In the U.S., most major creditors report to all of the major agencies; a few report only to two, and smaller creditors may report only to one. To find out which creditors are reporting to what agencies, you need to get a copy of your credit report from all three major agencies.

Since the agencies may have different data, your credit score may be different from one agency to the next. My TransUnion FICO score is a good twenty points higher than my Equifax or Experian.

Also, some credit scores may not be true FICO scores. They may look like a FICO, which is the de facto standard type of consumer credit score in the U.S., but since Fair Isaac & Co. do not release information on how they calculate FICO scores, they are never quite the same as a real FICO, so that causes some variation.

Most lenders use only one score when deciding whether to give you a loan, but some may pull all three and pick the middle one. Of course, lenders also look at things besides FICO scores.
posted by kindall at 8:48 PM on June 4, 2008

Oh. Credit bureaus are are regulated by the Fair Credit Reporting Act in the U.S. Enforcement is done by the Federal Trade Commission, I believe.

It is hard to have (accurate) negative information removed from your credit report because creditors now respond quickly to disputes, so the old trick of disputing something and hoping the creditor doesn't respond by the deadline specified in law doesn't work anymore.

In some areas, Equifax uses a company called CSC to collect credit information. Here's what Wikipedia has to say in their FCRA article:

"In some areas of the country, however, there is a fourth CRA, CSC Credit Services, which is responsible for information found within Equifax. For example, in Texas, if a consumer tries to dispute information with Equifax directly, it will not affect their credit report. They must go through CSC."
posted by kindall at 8:52 PM on June 4, 2008

Equifax was formerly CBI, based in Atlanta. They took over the credit reporting operations of CSC, formerly the Pinger System, several years ago. CBI + CSC = Equifax, now one single operation.

More to the point, if you are denied credit, the decline letter that you are sent is required by law to include the name, address, contact info of the bureau that supplied the report used to make the decision to deny you credit. If you want a copy of the report or want to dispute anything in it, you contact the bureau mentioned in the letter. I personally have signed many such letters in the past.

Back in the day, that would usually be your "local credit bureau" that served your city or multi-county region. In Minneapolis, the Credit Bureau (a Pinger, then a CSC affiliate) had offices on the 7th floor of the Plymouth Building downtown, at the corner of 6th and Hennepin. (Minneapolis longtimers may remember that there was a ratty Walgreens on the street level corner 20 years ago, it's now the Musashi Japanese restaurant.) You could go up to the 7th floor, yell at some poor woman through a bulletproof teller-style window, and get a free copy of your report with all the bad marks on it. Back behind the public lobby there were lots of people wranging magnetic tapes from Dayton's department store, First Banks, and so on, and doing assorted data entry. And sales staff reselling that same info, all consolidated and organized, back to the companies that were reporting it.

Nowadays the address is more likely to be one nationwide contact P.O. box, and the phone number an 800 number.

Credit "scores" are actually a fairly recent product, one that's helps greatly if you're going to automate credit approvals and declines. Think of them as something calculated from the information in the report--they're not really the "credit report" itself.

In most cases a company won't pull all three credit reports on a person, simply because they're unlikely to be all that different, and you'd end up paying three times for the same thing. Someone who's being careful (like mortgage companies used to be), or someone who's concerned about fraud or some other delicate situation, might pull more than one.

It's actually not that easy to put something into a credit report. You have to have a reporting relationship with the bureau, who is almost certainly selling you reports as well. If your company is flagged for getting lots of disputes, the credit bureau will not want the information you're reporting, because that would devalue the product they're selling. In a very extreme case, if such problems were to become public, this could raise suspicions about the value of your accounts receivable, lead to audits, fraud investigations, etc. etc. etc., as well as investigations for violations of FCRA. And, if the credit bureau cuts you off from purchasing reports, that could put a crimp in your daily business as well. My expectation is that any such uncomfortable situations would be handled quietly behind the scenes unless it got really bad, but this summary should at least give you some idea of the pressures on each side of the transaction.

Kindall's first paragraph is accurate.

It is hard to have (accurate) negative information removed from your credit report

Also true.
posted by gimonca at 9:34 PM on June 4, 2008

How do they keep data in synch? They don't for the most part. At least today, each country pretty much does its own thing. Credit reports from different agencies within a country will have some variation too, and most banks get their data from one or two credit reporting agencies; there is a fair amount of room for variation on credit reports. Some banks even have their own systems (usually as supplemental information).

This lack of real time and synchronized data has exposed a weakness in the financial system and is one of the reasons you are seeing things like bubble markets. If you check the news recently, you will see that CIBC (aka the Canadian Imperial Bank of Commerce) took a big hit to its finances because it was tied heavily to troubled market in the USA. Part of the reason it took the hit that it did, is that it was very hard for the bank to see the problematic trends early on and make adjustments to its cash supply, availability of credit, exposure to risky investments and other important aspects of its business.

Making these systems talk to each other would allow banks to identify trends (even regionally) which might indicate financial problems in some sectors or markets and attempt to mitigate/profit from their impact. This has become important has foreign ownership of banks has become widespread, and the Internet has increased the speed of commerce. I think you will start hearing about more data sharing in the near future.
posted by Deep Dish at 10:11 PM on June 4, 2008