In the aftermath of the Equifax hack, a lot of people are taking a closer look at the credit bureaus and how they operate. The purpose of this article is to give you some insight into the nuts and bolts of the bureaus – specifically, looking at how they keep their doors open.
Some people believe that the credit bureaus get money from showing negative information about consumers and that they actually boost their revenue by showing low scores. However, banks do not pay credit bureaus to show negative information. Instead, lenders pay credit bureaus for the information that they provide. When banks run credit reports, the credit agencies charge them a fee. Sometimes this fee gets passed along to the potential borrower as part of a fee, but that is how the credit bureaus make their money.
There is some competition among the bureaus to get a bigger market share. The credit bureaus pay providers of data to keep an accurate representation of the borrowing profiles of the people who are going to apply for the loans.
But when banks ask for a report on a borrower, they pay a set fee for that report. The fee does not vary with the credit score or with the information on the borrowing profile. The way that credit bureaus thrive is by ensuring that the information that they provide to lenders is accurate. This is one reason why credit bureaus investigate every dispute within a relatively short amount of time – they will lose market share if it comes out that other credit score providers have more accurate consumer data. The bureau that thrives is the one that provides the greatest degree of accuracy and thoroughness in compiling and reporting data on potential lenders to banks and other lending institutions.
One service that the credit bureaus provide is decision analytics. Lenders use this higher level of service to make their decisions. When lenders understand what incoming data means, they are more likely to purchase more of it. A credit report that does not explain how borrowers deal with debt over time is harder for a lender to process, so those bureaus that provide meaningful interpretation of the numbers are more likely to make money.
Credit bureaus also sell marketing services to lenders. Most commonly, these take the form of pre-approved offers. Agencies sell lenders lists of consumers who fit within different brackets of the credit market, making them likely targets of different offers. However, the bureaus must not sell any sensitive personal information as a part of those marketing efforts.
Finally, consumer services are turning into a stream of revenue for the bureaus. These include fraud protection, credit monitoring services and identity theft resolution. Consumers are worried about their information being stolen or their credit reports showing errors, and they are willing to pay to have those services in place.
So while credit bureaus do bring in a lot of money, they do not do so in the unethical ways that some fear. Keeping an eye on your credit report is the best way to ensure that your next lending experience is a positive one.
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