Yahoo! Finance Article on FCRA

Yahoo! Finance published an article answering questions on the role of Credit Reporting Agencies (CRAs) in the credit reporting world. The main CRAs are Equifax, Experian, TransUnion. The text of the Fair Credit Reporting Act defines a CRA as:

The term “consumer reporting agency” means any person which, for monetary fees, dues, or on a cooperative nonprofit basis, regularly engages in whole or in part in the practice of assembling or evaluating consumer credit information or other information on consumers for the purpose of furnishing consumer reports to third parties, and which uses any means or facility of interstate commerce for the purpose of preparing or furnishing consumer reports.

Yahoo provides a more common language definition as:

“They are for-profit companies that are not affiliated with the government and collect data about your credit behavior, along with the credit behaviors of more than 200 million other Americans,” said John Davis, founder of ScoreSense. “The information they gather is used to produce credit reports, which they sell to businesses.”

An important question the article brings up are why CRAs are necessary.

Credit reporting agencies are needed to act as disinterested third-parties that allow thousands of lenders and county courthouses to share data about consumer borrowing behavior, said Kevin Haney, president of Growing Family Benefits and a previous executive for Experian. “Credit reporting agencies receive jigsaw puzzle pieces about consumer borrowing behaviors communicated by thousands of lenders and county courthouses and assemble the pieces into a complete picture about an individual’s history,” he said.

This statement brings up the importance of CRAs being neutral, objective, and providers of accurate information. That information is critical in consumers and lenders being able to make informed and correct decisions when credit is involved. That is why it is important to keep high standards on the obligations that CRAs and furnishers have to ensure accurate information and to promptly remedy any inaccurate information.