Peeking Inside the Credit-Score Machine

By Maryalene

There are three little numbers that can alter your life.

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Will you qualify for the mortgage? Will the dealership give you the car loan? Are you going to get the 10% or the 25% APR on your credit card? Your credit scores as factored by the three major credit bureaus -- Experian, TransUnion and Equifax -- can determine the answers to these questions.

Credit bureaus operate in complex ways, but a new study published by the federal Consumer Financial Protection Bureau sheds some light on their inner workings. The study, said to provide the most comprehensive look into credit reporting to date, provides insight into who is reporting to the bureaus, why complaints are made and how well consumers are monitoring their credit.

Consumers ignore free credit reports

Despite a federal law requiring the three major credit bureaus to provide consumers a free credit report each year, most fail to take the government up on the offer. The CFPB found only 44 million people -- about 20% of consumers -- requested their file in 2011.

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Those that did look at their credit report filed disputes for 32-38 million items on their files. In about 40% of those disputes, debts in collection were at issue.

Unfortunately for consumers, who may think their dispute will get a third-party review, the vast majority of complaints simply get forwarded to the company that furnished the data on the report. Only 15% of disputes are resolved internally by credit bureaus. The rest are sent for review by the company supplying the account information to the bureau.

Credit cards a major influencer

For anyone trying to build up their credit, it might be worthwhile to know that credit card companies furnish more than half of the payment data being sent to credit bureaus. According to the CFPB study, information received by the bureaus can be broken down to the following major sources:

  • Bank cards, such as general credit cards issued by Visa and MasterCard: 40%
  • Retail credit cards: 18%
  • Mortgage lenders or servicers: 7%
  • Auto lenders: 4%

In addition, only a few companies are providing credit bureaus with the majority of the information they receive. The study found 57% of the trade lines being reported to the bureaus came from the top 10 data furnishers. More than three-quarters of all data being provided to the credit bureaus came from just 100 sources.

With credit bureaus playing such an integral role in personal finances today, consumers shouldn't take for granted that their account data is being reported properly. Requesting a free annual report from (the only U.S. government-sanctioned source for free reports) and reviewing it thoroughly can be a great first step toward monitoring your credit.

If you are trying to build your credit, make sure all your accounts are reporting payments to the bureaus. If not, contact the companies that aren't and ask if they will start providing payment information. This may help boost those three magic numbers that mean so much today.

The original article can be found at inside the credit-score machine