In their quest to become more competitive, credit bureaus have become more resourceful in their methods of data collection. In some cases they may even cross the boundaries of legality. In general, however, they use several legal sources of information.
- Current and previous creditors.
- Public records.
- Internal analysis.
- Credit applications.
Current creditors are a bureau's best source of information. Most of these creditors are subscribers and have their computer records "dumped" automatically into the credit bureau's computers on a regular basis. Creditors provide information such as when the account was opened, what the highest balance has been, current address, social security number, and payment history. For example, if you have ever been late on your department store charge card, the department store's computer will record how many times the account was late and how late the payment was each time. Once a month, the department store computer will give this information to the credit bureau(s) computer. If you apply for a charge account at another department store, they will obtain a copy of your credit report from the bureau that they deal with and it will have the current status of your other account The credit bureau charges the second department store for a copy of your credit report but the first department store does not receive anything for the information it provides the credit bureau. A former creditor's account may also appear on the credit report, even if the account is no longer in use. The computers of most department stores, finance companies and banks retain old account information and continue to report it to credit bureaus, often incorrectly showing the account to be open. The information may continue to appear on a credit report some time after the credit relationship has ended. This information would include any late payments or other problems with the account. Keep in mind that creditors seldom report payments that are less than thirty days late, so not every late payment will necessarily show on your credit report If the lender is not a subscriber to a particular credit bureau, the account probably won't show up at all.
Many of these credit reports have a decidedly negative bent For example, the only credit information American Express reported for many years were delinquencies. They did not report current accounts in good standing. Accounts that do not involve monthly payments are usually not reported to any of the credit bureaus unless they become delinquent Even a doctor's bill or a utility bill can become a part of your credit record if it's turned over to a collection agency. Any time an inquiry is made in your credit report, a record is kept in your credit file.
If, for example, you apply for a department store card and the store obtains a copy of your credit report, it becomes a part of your record for two years even if you fail to get the credit card. Having too many of these inquiries can hamper your ability to obtain future credit grantors often assume that someone with too many inquiries on his or her report is either trying to obtain too much credit too quickly or has been rejected by everyone else-even if the rest of their application is in good order.
Public records provide another source of information for the credit bureau's records. All court records, bankruptcies, and liens are scrutinized by credit bureau employees and reported. This includes any tax liens (even if they've been paid) or small claims court judgments, although if you are sued and there is no judgment against you, it will not appear on your credit file. Other legal filing such as articles of incorporation, DBA's (Doing Business As), divorce, or death may also appear in your credit file. Anything that is public (and a surprising amount of information is public) can find its way into a credit file.
Internal analysis is one of the fastest growing "value added" services credit bureaus are offering to their customers. Increasingly sophisticated computers are allowing credit.
