You probably already know that your credit reports and scores are important. In fact, it would not even be considered overly dramatic to state that your credit can, in large part, shape the entire direction of your life.  

Want to rent a place to live? Someone will likely check your credit. Applying for a new job? Your credit report may be consulted. Trying to qualify for a new mortgage, auto loan, credit card, or personal loan? Your credit will definitely play a very important role in your ability to receive the financing you need.

There is simply no escaping the fact that the condition of your credit is going to be used to judge you over and over again. As such it is important to understand who exactly controls this vitally important information which is used to judge you. Obviously you yourself typically exert the most control over the information which is reported about you and ultimately appears on your credit reports. However, it would be a mistake to forget that the credit bureaus also play a very important role as well.

Who Are the Credit Bureaus?

The 3 major credit bureaus, also known as credit reporting agencies (CRAs), in the United States are Equifax, TransUnion, and Experian. They are for-profit companies who compete with each other for business and they most certainly are not government agencies.

The CRAs collect and maintain information about your credit management habits from lenders, collection agencies, banks, credit card issuers, etc. These companies are known as "data furnishers" and they share information with the credit bureaus voluntarily. Once the information has been collected and stored, the CRAs resell that information in the form of credit reports to lenders and many other types of businesses who are interested in your credit history.

Why You (the Consumer) Are Not the Credit Bureaus' Priority

Although technically the CRAs do sell millions of credit reports and products each year to consumers, you still are not their primary customer. Rather, your information is the credit bureaus' commodity. The CRAs primary customers are (by a landslide) the businesses who purchase your credit information.

Lenders and other businesses often rely upon credit reports (and the credit scores generated based upon those reports) for a variety of reasons. First, credit reports are purchased to help companies assess risk - the risk of doing business with consumers who apply for financing or service or even the risk of continuing to do business with their current customers. Additionally, a massive number of credit reports are purchased each year by lenders who want to use the information for prescreening and marketing purposes.  

Why The System Hurts Consumers

The credit bureaus do serve a purpose and, in many ways, they even actually make consumers' lives easier. For example, without the credit bureaus you might have to wait weeks or even months to see if your applications for financing and credit cards were approved. Additionally, once you understand how credit reporting and scoring works you can and absolutely should leverage that knowledge to your advantage. That being said, when you have a system which is set up to cater to creditors and other businesses at the exclusion of consumers, problems are inevitable.

Each CRA maintains over 200 million credit files on US consumers. The handling of such a colossal amount of data ensures that credit reporting mistakes are bound to occur. The Federal Trade Commission released a study which proposed that there could be as many as 40 million mistakes on consumer credit reports. Studies by others have even estimated that number to be significantly higher. Although the CRAs and consumer advocate groups may argue ad nauseam regarding the "real" number of mistakes, the truth is that if a credit reporting error is hurting your personal credit scores and keeping you from qualifying for the things you need, it is one error too many.

Sadly when it comes to credit reporting errors, the CRAs' stance is to consider you guilty until you can prove yourself to be innocent. If a disagreement arises between you and a creditor it is not you, the consumer, whom will be given the benefit of the doubt. The CRAs will side with their customer, the data furnisher, every single time (unless it is not in their best interest to do so).

Protecting Yourself

Because of the nature of the credit reporting system it is essential that you become proactive in an effort to protect yourself. No one else is going to look out for your interests, least of all the credit bureaus. You must be responsible to routinely check your credit reports for errors and, if errors or any "fishy" looking credit reporting occurs, you must do something to make your voice be heard.

This goal may be achieved by disputing the offending items, hiring a credit repair professional to help you dispute questionable information and to exercise your rights, or in extreme circumstances perhaps even seeking the help of a reputable attorney. Regardless of your choice of action, the biggest mistake you could ever make is to stick your heard in the proverbial sand and ignore the problem.

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Michelle Black is an author and leading credit expert with a decade and a half of experience, a recognized credit expert on talk shows and podcasts nationwide, and a regularly featured speaker at seminars across the country. She is an expert on improving credit scores, budgeting, and identity theft. You can connect with Michelle on the HOPE4USA Facebook page by clicking here.