Purchasing resources for Credit Bureaus

A Guide to Credit Bureaus

A credit bureau is an extremely useful tool for lenders and financial regulators.  It assesses the spending and borrowing habits of the public by a variety of means into data that can be analyzed by companies seeking to lend money to consumers.  It enables policy-makers to understand how the usually invisible end of the financial spectrum is working, and it helps lenders compute the viability of a loan.  Let’s consider them more closely, and discuss some of the pros and cons of their existence.

How They Work

When a potential borrower asks a bank or other lender for capital to put forward a business venture, the lender has to be able to assess whether or not the money can be fronted, and what the terms of such a loan might be.  By compiling information on the borrower’s past buying habits, assets, and debt management, the lender can determine the precise conditions of the loan, so that risk can be minimized and a higher earning potential achieved.

The most direct result of credit bureau information is often the interest rate set on the loan.  Customers deemed higher risk by the information provided can be given more stringent terms than those with a sounder financial background.

The body of information collected and the methods of collection are quite complex, and the algorithms for analyzing them even more so.  But they can pay off in a big way for those lending and investing money, by assuring the least possible risk and maximum possible return.

Benefits

Accurate credit bureau information means precise data on financial transactions and an overall strengthening of the market.  Banks have an easier time assessing the health of the system, and investors can set their interest rates with a high degree of specificity.

For policy makers, having this data available means the potential for more sophisticated regulation of markets.  Based on the information collected by the bureau, laws can be enacted to reflect public demands or improve the general condition of borrowers at large.

Pitfalls

The collection of financial data can imperil the privacy of clients, who often aren’t aware that they’re being observed – or would prefer not to be.  An agency for consumer protection, the Fair Credit Reporting Act – called CRA within the industry – regulates possible excesses in the sector.  Oversight at large for American markets is handled by two federal government bureaus: The Federal Trade Commission (FTC), and the Office of the Comptroller of the Currency (OCC).

These oversight agencies make available the credit bureau information to the general public, and establish standards for common practices among lenders.

Conclusion

Credit bureaus carry with them significant advantages for both improving and regulating financial markets, at the cost of reducing the financial privacy of consumers.  Whatever its uses, it’s an extremely large and complex data set that carries huge ramifications for the economy at large.