Now that we understand how important a credit report is, you may be asking yourself, how do they get all this information about me? And what allows them to do this? Here we will discuss the logistic behind how credit reports work.
First off, it is important to understand why a company is allowed to collect all this rather personal information about you. Credit bureaus, or credit reporting agencies, are the ones who collect all this information. Who do they collect it from? Primarily from lenders, merchants, and landlords, to name a few. These credit reporting agencies this information to creditors in the form of a credit report.
There is not only bad information on your credit report, but good information as well. It is not up to the credit reporting agency to determine whether or not you have bad credit. It is up to the creditor to decide if you are a risk to lend to. If they do decide that you are a high risk to lend to, they will either deny you, or give you the loan at a much higher interest rate.
What laws allow credit reporting agencies to accumulate information about you, and allows creditors access to this information? In the United States it is called the Federal Fair Credit Reporting Act. This act is primarily there to protect businesses from bad debt. According to the act, there is certain information that cannot be supplied on a credit report. We will go into detail what this information is in the next article.
We hope this article has given you some understanding and insight into how information on credit reports is collected and obtained. If you have further questions please browse the governments website for more information on the Federal Fair Credit Reporting Act.