A credit bureau is a for-profit organization that keeps records of a person’s credit history and gives each individual a credit rating. This credit rating is used by banks and other lenders to determine the credibility of an individual that is seeking a loan. At times, credit card companies themselves will use credit bureaus in an attempt to see if an individual can be trusted with a credit card. A person’s credit history is based upon a variety of factors. Late payments or non-payments of past debts show up on credit bureau records and hurt a person’s credit rating. This could cause an individual with a bad credit history to not be able to receive a loan or credit card in the future.

Responsibility

In essence, credit bureaus measure a person’s level of responsibility with money. Those that have proved that they can use credit efficiently and pay back borrowed money on time will continue to enjoy the privilege to borrow. Those that have a bad credit rating on file with credit bureaus will have a very difficult time finding a reputable loaner. This causes many with bad credit to turn to less reputable sources of money such as loan sharks who charge exceptionally high interest rates because they know that individuals with bad credit are in a bind and cannot find any other way to obtain a loan.

History

There are three national credit bureaus, Equifax, Experian and Trans Union and they must all follow regulations mandated in the Fair Credit Reporting Act. These regulations require that any negative reports that could affect a person’s credit history be eliminated from calculation after a period of seven years. Thus, a person can make mistakes early in life regarding their credit, but realize the error in their ways and possibly have a good credit rating after seven years. However, a bankruptcy report remains on file for ten years. Therefore, individuals who mismanage finances to the point of filing bankruptcy are penalized more heavily than those who are simply late on a few payments here and there. Banks, credit card companies, and other lenders rely heavily on accurate reports from credit bureaus in order to make sound lending decisions. This is why credit bureaus are so important to the financial world as a whole.