How Lenders Report to Credit Reporting Agencies

When a lender agrees to give you a loan, credit card or other form of credit, that lender takes a risk. The risk is that you won't pay the money back in the manner you agree to. To protect against these risks, lenders rely on credit scores and credit reports to make their decisions. These are based on information reported to the credit reporting companies through different methods.

Three Companies

When it comes to consumer credit scores, there are three main companies, each of which has its own credit scoring system and methods of collecting information: Equifax, Experian and TransUnion. These companies deal in information, collecting it, organizing it and assigning numbers (credit scores) based on it. How a credit company gathers its information is up to each company, though they generally rely upon creditors who report borrower behavior to the company.

Borrower Activity

Each lender reports borrower behavior to one or or more of the credit reporting companies. Some companies, for example, have software that automatically sends borrower data to the credit reporting bureau. Other companies, such as those with few accounts, report information less regularly. These companies sometimes use intermediaries, such as collections agencies or credit reporting service companies, that report information on behalf of their customers.

Mistakes

Like any other process, the credit reporting process is subject to mistakes of various kinds. Many creditors report vasts amounts of information about borrowers, and these data entry and reporting procedures can result in mistakes large and small. You have the right to not only inspect your credit report every year, but also to demand a credit reporting company change erroneous information.

Multiple Sources

Credit reporting companies do not only rely on lenders to provide information about borrower behavior. They also collect data from publicly available sources. For example, if you have a lawsuit filed against you, this lawsuit is public information. If you end up losing the lawsuit and the court files a judgment against you, the credit reporting company can access that information and use it as part of your credit report.