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A credit bureau (U.S.), or credit
reference agency (UK) is a company that collects information from various
sources and provides consumer credit information on individual consumers for
a variety of uses. It is an organization providing information on
individuals borrowing and bill paying habits.[1] This helps lenders assess
credit worthiness, the ability to pay back a loan, and can affect the
interest rate and other terms of a loan. Interest rates are not the same for
everyone, but instead can be based on risk-based pricing, a form of price
discrimination based on the different expected risks of different borrowers,
as set out in their credit rating. Consumers with poor credit repayment
histories or court adjudicated debt obligations like tax liens or
bankruptcies will pay a higher annual interest rate than consumers who don't
have these factors.
In the U.S., credit bureaus collect and collate personal information,
financial data, and alternative data on individuals from a variety of
sources called data furnishers with which the bureaus have a relationship.
Data furnishers are typically creditors, lenders, utilities, debt collection
agencies and the courts (i.e. public records) that a consumer has had a
relationship or experience with. Data furnishers report their payment
experience with the consumer to the credit bureaus. The data provided by the
furnishers as well as collected by the bureaus are then aggregated into the
credit bureau's data repository or files. The resulting information is made
available on request to customers of the credit bureau for the purposes of
credit risk assessment, credit scoring or for other purposes such as
employment consideration or leasing an apartment. Given the large number of
consumer borrowers, these credit scores tend to be mechanistic. To simplify
the analytical process for their customers, the different credit bureaus can
apply a mathematical algorithm to provide a score the customer can use to
more rapidly assess the likelihood that an individual will repay a given
debt given the frequency that other individuals in similar situations have
defaulted. Most consumer welfare advocates advise individuals to review
their credit reports at least once per year, in order to ensure that the
reports are accurate. Consumers can do so at no cost. They are entitled to a
free annual credit report from each of the three nationwide consumer
reporting agencies, Equifax, Experian and TransUnion. Consumers can go to
annualcreditreport.com, the Internet site maintained by the three companies,
to get their free report.
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