How Does Credit Score Work and What Does the Law Say About It?

Credit reporting agencies, also termed credit bureaus, collect all of an individual’s credit information, so it’s important for everyone to know how they work, including their relationship with the law. Consumer credit history reports and scores are both important, so you’ll want to ensure that you have the right facts.

Lenders access three primary credit bureaus when pulling and reviewing your credit reports: Equifax, Experian, and TransUnion. There are a large number of CRAs in addition to these three credit reporting agencies.

There remains much confusion, however, with regards to what these credit bureaus do. What kind of data do they collect? How can you view your credit score? And more significantly, what is the relationship between credit score and the law? Let’s attempt to answer these questions here.

What data do credit bureaus collect?

Credit reports include data on any credit accounts you currently have, in addition to your credit history from a number of financial institutions that include banks, credit cards companies, mortgage companies, and any other lenders you have previously dealt with.

Other companies, such as electricity and telephone companies, may also provide information to credit reporting agencies. However, such non-lending companies only tend to report negative information, such as delinquent payments or an account sent to collections.

The main credit reporting agencies collect a wealth of data, but there are only five primary factors that are typically used in calculating your credit score when you’re seeking a loan or credit. These factors are the number of hard enquiries made, the duration of your credit, your debt, the types of accounts on your file, and your payment history.

How to view your credit report

You are entitled to one free credit report from each of the bureaus per year. If you would like to view your score at any other time, they will provide it to you for a fee.

Experian and Equifax offer credit files that include each of the three primary credit reports on one page.

While the three main bureaus will charge you for viewing your personal credit score more than once, there are other companies, such as Fundbox, that will provide you with a free business credit score. Many other firms, however, will charge you as they aren’t legally obliged to offer you a free annual business credit score, as is the case with personal credit scores.

Fair Credit Reporting Act

The Fair Credit Reporting Act (FCA) is Federal Government Legislation that is designed to promote privacy, fairness, and accuracy of consumer data in credit agencies files.

Among the main concerns regarding the act is how agencies use the data they are collecting on a consumers’ credit history. The aim of the Act is to protect consumers from misinformation.

It’s wise to properly review your reports from each of the three credit reporting agencies for the small details that influence your credit scores and to keep an eye on your scores for sudden changes, as they can indicate identity theft.
By knowing your score, you will gain a better understanding of the kinds of terms and conditions you could qualify for on any loans or lines of credit. Also, understanding what each agency does gives you an advantage with regards to your rights as well as the security of your accounts with all three bureaus.