The term ,' Credit Bureau' is in use for around a century now. There are different connotations of the term,' Credit Bureau'. For some it is an entity which keeps records of the customers which have defaulted while some others it means an agency which is similar to a credit rating company. However, credit bureau is much more than these understandings.Credit Bureau is a company or agency which collects data from various sources related to credit transactions and makes the data after compilation available to its members for usage.
This means that both the contributors of data and users of data are almost same. The credit bureau makes data available to member institutions which they could not have able to obtain on their own. The source of data for credit bereau is the different credit grantors like banks, financial institutions. Just to make the understanding clear through an example, let us take the case of few (5 in number) banks who have given credit to their clients. Independently they can access data related to their clients only but since a credit bureau is existing it collects data from different sources i.e. all five banks and makes the data in a format available to members. The data is made available by the credit bureau in form of a report often called as ,' Credit Information Report'.
The credit information report provides details on how the customer performed on the credit availed by him in the past. This makes the job of credit grantors easy when they intend to approve a new credit for the same customer. Many credit bureaus provide credit performance of customer in form of a score which is known as the credit score of the customer. The credit score is decided on factors as delinquency, utlilisation of credit, credit mix, some demographic factors etc.
There are several credit rating agnecies across the world. However some of the known agencies are:
1) TransUnion
2) Equifax
3) Experian
4) Call Credit
5) Compuscan
The role of credit rating agency has acquired significance over a period of time and many financial institutions use the data provided by credit rating agency for the purpose of granting of credit. They have become a pillar of strenght for financial institutions and help them mitigate risk related to credit.
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