Credit Bureaus

You're probably already familiar with the Big 3 credit bureaus or national credit reporting agencies, as they are sometimes called: Equifax, Transunion, and Experian (formerly TRW). I've heard many of my credit improvement clients say they feel intimidated by the credit bureaus because they thought they were part of the government.

$ 4 Billion Earned

Whether you know it or not, they are not government entities but private businesses earning more than $4 Billion per yer by gathering and selling your credit information. This is important to know because it sets the stage for you to gain confidence when dealing with the credit bureaus.

Think about it, if the credit reporting agencies are making billions of dollars selling your personal information, and credit is increasingly being used for important decisions affecting your life, shouldn't you have rights regarding how they use your personal information?

Not to bore you, but when the Fair Credit Reporting Act was introduced to the Senate in 1969, Senator William Proximire stated"...considering the growing importance of credit in our economy, the right to fair credit reporting is becoming more and more essential".

So it's very important to understand that the credit laws were enacted to protect you from how these private businesses use your personal information. Don't let them intimidate you. Get credit information and know your rights.

Lets talk some more about how the big 3 credit reporting agencies make money. Once you see behind the scenes, you'll understand the conflicts of interest between the players in the credit industry.

Basically, each player's interest is motivated by how they make money in the credit system. Sometimes these interests clash. But in every case you can be sure that your interest is not their concern. So you have to get credit information and decide for yourself who to trust to help legally improve your credit.

The big 3 credit reporting agencies sell two types of data: Consumer Credit Report Data and Direct Marketing Data.

Consumer Credit Report Data

When you apply for credit, insurance, or even employment; credit card companies, insurance companies, employers or landlords will purchase a consumer credit report from the credit bureaus to assess your creditworthiness.

They want to see how you pay your bills and decide whether they feel you will pay them timely or not. And in the case of employers, they use it to decide whether to hire you or if you'll get the promotion.

The point is the credit bureaus make a lot of money by selling the consuer credit reports to businesses that want to review your data to make credit decisions affecting you. Considering how many times you have authorized your credit to be pulled, you can see the credit bureaus are making a lot of money selling consumer credit report data.

Direct Marketing Data

The credit reporting agencies make money by selling your information to marketing companies that want to get data targeting certain prospects to offer their products or services.

For example, during a recent congressional hearing, Transunion reported that they earned over $6 million per year from MBNA (a major credit card company) by selling them certain credit information they used to target customers to make credit card offers.

Again, this insight comes from public congressional hearings and law suit depositions of credit bureau employees.

They could have requested a listing of consumers with no late payments and credit card balances above $10,000. They could be interested in sending these consumers offers to transfer their balances to a zero interest credit card.

Alternatively, another credit card company may order a listing of targeted consumers with credit scores of less than 550. They may be interested in sending credit card offers to consumers in need of re-building their credit. So they may offer higher interest rates and annual fees for a credit card with a very low credit limit.

Given these two examples, you can see that not all data has the same value to the marketers. Some may be willing to pay more for their data because they can make more money with it than others. The fact is the credit bureaus make more money by selling negative credit information than accurate credit information.

So they really don't have an incentive to correct your credit information. Yet it's interesting to me when I see TV ads from credit bureaus offering to repair your credit reports. It's like the fox watching the hen house! Do you see the conflicts of interest here?

Dispute Process Income

I recently read segments of a congressional hearing transcript and excerpts of several law suit depositions of credit agency employees and a report published by the National Consumer Law Center regarding the credit reporting system. This public information disclosed remarkable insider information regarding the credit bureaus and how they actually make money by processing automated credit disputes.

Here's how. Remember, the Fair Credit Reporting Act gives you the right to dispute inaccurate, incomplete or unverifiable information included in your credit reports. It outlines the dispute process the credit agencies are legally obligated to comply with. Unless your dispute is considered frivolous, they must investigate all inaccurate information. Any inaccurate, incomplete or unverifiable information must be deleted within 30 days of the dispute.

The key is to understand that the credit agencies don't make their money from you the consumer. They actually make most of their money from their real paying customers, the creditors who furnish the information. In this case, they charge the furnishers of data a fee of $.25 per dispute when the creditors provide information that turns out to be inaccurate.

The average dispute letter contains 5 disputes. That's $1.25 per dispute letter. Yet because the credit bureaus outsource their automated dispute process to overseas companies that cost them as little as $.49 per dispute letter they make a profit of $.76 per dispute letter processed.

I know the math is a brain teaser but the point is there is an inherent conflict of interest here. The agencies have no incentive to correct the inaccurate credit information in their database. Once again, inaccurate information is of more value to them than accurate credit information. So get credit information and decide for yourself who to trust to help legally improve your credit.

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