This industry includes establishments primarily engaged in providing mercantile and consumer credit reporting services. Examples of such establishments include consumer credit reporting bureaus, credit bureaus and agencies, credit clearinghouses, credit investigation services, and mercantile credit reporting bureaus.
Credit reporting services are a prime source of credit information for both consumer and mercantile (business) markets. Although there are numerous credit reporting agencies operating all over the United States, with most specializing within specific industries, the services they offer are usually limited to reference books, ratings, recommendations, and reports. Some agencies, such as Dun & Bradstreet, provide all these services, whereas other agencies may offer only one or two. Whereas reference books, ratings, and recommendations are primarily used by credit managers, credit bureau reports can be used by others to verify that individuals or firms have listed all of their debts and provide valuable clues about individuals' or firms' payment behavior. Marketers may also use such information to effectively segment their markets based on credit performance criterion.
The industry is dominated in the United States by three credit bureaus: Equifax, Experian, and Trans Union. These companies compile data from public records and creditors to create credit reports for over 200 million Americans. All three companies maintain a contract with an independent company, Fair Isaac, which transposes the data into a credit score. Credit scores range from 350 to 800 points, with score of 620 or above considered good. Access issues and consistency among reporting bureaus generated controversy in the 2000s. By the mid-2000s, 75 percent of mortgage lenders and 80 percent of large financial institutions relied on credit scores to assess credit risk.
Most credit bureaus are either owned by or under contract agreement with one of the United States' three major consumer credit reporting agencies: Equifax, Experian, and Trans Union. These national agencies maintain centralized computer databases that contain the credit records of more than 200 million Americans. Similarly, agencies such as Dun & Bradstreet Information Services provide credit information on more than 10 million U.S. businesses. Credit bureaus generate more than a half-billion credit reports every year, and two billion pieces of information about consumer trade activities are entered into consumer credit records each month.
Consumer and mercantile credit are the two broad categories of services that are offered by the credit reporting agencies in the United States. Consumer credit is the medium of exchange that an individual consumer may offer to a seller of goods or services or to a lender of money. Consumers use credit to obtain items in the present and pay for them at some future time. Despite the fact that virtually every person in America eventually has contact with some phase of consumer credit, the extent to which consumers use credit varies. Consumer credit reporting services provide information on retail, service, and cash credit. These services gather and evaluate information on a consumer's credit activities for his or her lifetime. Based on this information, agencies provide a consumer's credit rating to the party seeking credit information.
Retail credit is sought before processing retail sales to consumers. The sale may take place as a revolving credit, an installment credit, or an open charge transaction. Credit reporting services are critically important to the business of retail credit. For example, credit reporting services provide information on each consumer that applies for retail credit cards such as American Express, Visa, or Master Card. Credit reporting agencies are also extensively used to check the credit status of mortgage applicants. Many retail outlets that provide installment credit, which is a plan that allows a customer to pay in several installments, also use credit reporting agencies in a similar credit-check fashion.
Service credit consists of credit provided to consumers for services rendered, such as those by doctors, dentists, and lawyers, or for the use of gas, electric, or water utilities. The credit reporting services provide credit ratings for consumers of these service organizations.
Cash credit involves lending money directly to consumers. Organizations such as consumer finance companies (sometimes called personal finance companies) or small loan companies; commercial or industrial banks (personal or consumer loan departments); credit unions; insurance companies; and other types of lenders seek the service of the credit reporting establishments. They request advice from these companies before approving the loan and consequently providing money to the consumer.
Business credit is one of the principal means by which business executives can translate opportunities into productive ventures. Credit reporting establishments provide two types of services to the organizations seeking business credit information: commercial and cash credit.
Commercial credit is extended when a manufacturer or supplier provides goods to another party (an intermediary, wholesaler, or final retailer) for resale to the consumer. Credit reporting services are used extensively in this area due to the volume and the value of goods exchanged. This is especially true when a supplier is conducting new business with an unfamiliar party. In this case, credit reporting services are used to provide information in the form of a credit rating that contributes to the critical final credit evaluation.
Cash credit allows businesses to borrow cash to acquire both current and fixed assets, which it agrees to repay on a long- (over five years), intermediate- (one to five years), or short-term (less than one year) basis. Organizations such as commercial banks, investment companies, insurance companies, commercial finance companies, and even individuals seek credit information about businesses before lending them cash.
Information about the credit position of individuals and families may be purchased from many sources. Since credit investigations have become extremely specialized, organizations usually rely on specialists. Credit information in the files of specialized credit reporting agencies can be used more than once. In fact, multiple use of the same information is the principal on which a consumer credit reporting agency is founded.
There are several types of consumer credit reporting agencies. Some agencies serve a wide geographic area with their own computer database. The primary source of their data is accounts receivable tapes of credit grantors and public record information. The four major credit reporting firms in the United States are Equifax, Experian (formerly known as TRW Information Services), Trans Union, and CSC Credit Services.
Some agencies operate...