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Peeking inside the credit-score machine

December 24, 2012

| Money Rates Columnist

There are three little numbers that can alter your life.

Will you qualify for the mortgage? Will the dealership give you the car loan? Are you going to get the 10 percent or the 25 percent APR on your credit card? Your credit scores as factored by the three major credit bureaus -- Experian, TransUnion and Equifax -- can determine the answers to these questions.

Credit bureaus operate in complex ways, but a new study published by the federal Consumer Financial Protection Bureau sheds some light on their inner workings. The study, said to provide the most comprehensive look into credit reporting to date, provides insight into who is reporting to the bureaus, why complaints are made and how well consumers are monitoring their credit.

Consumers ignore free credit reports

Despite a federal law requiring the three major credit bureaus to provide consumers a free credit report each year, most fail to take the government up on the offer. The CFPB found only 44 million people -- about 20 percent of consumers -- requested their file in 2011.

Those that did look at their credit report filed disputes for 32-38 million items on their files. In about 40 percent of those disputes, debts in collection were at issue.

Unfortunately for consumers, who may think their dispute will get a third-party review, the vast majority of complaints simply get forwarded to the company that furnished the data on the report. Only 15 percent of disputes are resolved internally by credit bureaus. The rest are sent for review by the company supplying the account information to the bureau.

Credit cards a major influencer

For anyone trying to build up their credit, it might be worthwhile to know that credit card companies furnish more than half of the payment data being sent to credit bureaus. According to the CFPB study, information received by the bureaus can be broken down to the following major sources:

  • Bank cards, such as general credit cards issued by Visa and MasterCard: 40 percent
  • Retail credit cards: 18 percent
  • Mortgage lenders or servicers: 7 percent
  • Auto lenders: 4 percent

In addition, only a few companies are providing credit bureaus with the majority of the information they receive. The study found 57 percent of the trade lines being reported to the bureaus came from the top 10 data furnishers. More than three-quarters of all data being provided to the credit bureaus came from just 100 sources.

With credit bureaus playing such an integral role in personal finances today, consumers shouldn't take for granted that their account data is being reported properly. Requesting a free annual report from annualcreditreport.com (the only U.S. government-sanctioned source for free reports) and reviewing it thoroughly can be a great first step toward monitoring your credit.

If you are trying to build your credit, make sure all your accounts are reporting payments to the bureaus. If not, contact the companies that aren't and ask if they will start providing payment information. This may help boost those three magic numbers that mean so much today.

Your responses to ‘Peeking inside the credit-score machine’

Showing 4 comments | Add your comment
Tim McMahan

15 January 2013 at 2:20 pm

If every institution was required to report, Things may stay more accurate But at the same time people like Rent a center , has to pick up THEIR stuff , That shouldnt have to report...You are renting!! Got my Idea? Anyone that is making 300% profit shouldnt bitch! Thanks I think the whole credit report thing is crap if you dont have the info !!!


15 January 2013 at 2:12 pm

Who regulates this machine? And why are they allowed to wield so much power? And why is it close to impossible to get a definite answer about anything? Will 2 hard inquiries hurt my score? Experian tells you one thing, Equifax another, and Trans-Union yet another! And these machines have the power to affect my employment, my housing, my insurance? What don't they have an effect on?


15 January 2013 at 2:07 pm

Has anyone else noticed that when you start going for the big bucks i.e., mortgage loans, auto loans, etc., old debts start to come out of the woodwork? A hard inquiry on my credit report brought out a debt over a year old. COMCAST throws your alledged debt to the collection agencies 10 days past due on a closing bill, and that's it. One year later after not receiving a single statement, the collection agency opens its jaws a takes a big bite out of your credit score. ONE YEAR later! And just try proving them wrong, takes weeks. And all the while you've got an account in collection. And you can't go to the collection agency without having that account re-aged. Now someone please tell me how this can be legal.


4 January 2013 at 9:14 am

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