Here's a more detailed explanation of what credit agencies do:
Collect Credit Information: Credit agencies gather data from a variety of sources to build profiles of borrowers, including:
- Personal or Business Identification Information
- Credit Payment History
- Outstanding Debts
- Defaults or Bankruptcies
- Public Records
- Employment Information
- Income and Assets
- Collateral Details
Analyze and Score Credit Risk: Credit agencies analyze the collected data using complex statistical models and scoring systems to determine the credit risk associated with each borrower. These credit scores are represented as numerical values or ratings ranging from excellent to poor. The most commonly known consumer credit scores in the United States are FICO scores, which range from 300 to 850.
Issue Credit Ratings: Credit agencies assign credit ratings to borrowers based on their credit risk. For businesses and governments, these ratings indicate their ability to repay debts and meet financial obligations. For consumers, credit scores serve as a summary of their credit history and help lenders assess their creditworthiness.
Report Credit Information to Lenders and Consumers: Credit agencies provide credit reports containing the information mentioned above to lenders, such as banks, credit card companies, and other financial institutions. These reports help lenders make decisions about extending credit and setting interest rates and credit limits. Consumers can also obtain their credit reports to monitor their credit history, detect errors or discrepancies, and take steps to improve their credit scores.
The major credit agencies in the United States are Equifax, Experian, and TransUnion. These agencies provide credit scores and reports to consumers and lenders and play a crucial role in credit assessments and decision-making.