How Credit Bureaus Work

Credit bureaus play a vital role in your borrowing life. They serve as your reputation in a world where the banker doesn't know you. The credit bureaus collect information about you and pass it on whenever somebody needs to get the scoop on you.

The credit bureau is like a warehouse of information about your past. When you borrow money - with a car loan or credit card, for example - your lender reports back to the credit bureaus. The lender tells the credit bureau if you've been naughty or nice and how much debt you have. Credit bureaus also collect information from other sources such as public records.

The next time you want a loan, the lender can find out about your past by asking the credit bureaus for your credit report. The credit bureaus regurgitate the information that's been provided to them, and your lender makes a decision.

Credit bureaus do not make the call on loan approval. They simply repeat what's been reported to them without judging whether you're good or bad. Your lender evaluates that information to make the final call. They might use a credit score, such as the FICO credit score, to help with the decision - but it's still the lender's decision.

While they often get a bad rap, credit bureaus make life easier when they function correctly. They allow you to borrow from people and institutions that you've never met before, and they help you get better loan rates if you can show a solid history of responsible borrowing.

There are hundreds of credit bureaus. For most loans, the "big three" credit bureaus are involved:

Other credit bureaus are used in specialized cases.