Our world is surviving on business lending, borrowing, interest rates, fiscal and monetary policies etc. so definitely financial institutions are playing a huge role among all these phases. People take loans and repay as a result lender earns in terms of interest. Since this business is so in and companies are earning really well in this, there must be some check and balance for it? Yes! There are credits reporting agencies exactly like credit rating agencies. Common people like us, usually mingle the term credit reporting agencies with collection agencies, but both terms are entirely different from each other.
Credit reporting agency is a profession/business which establishes the complete details of previous credit information of a person (how much was lent, how much was paid, what was the interest rate? Everything is there noted in the database of credit reporting agencies). These agencies seek feedback from the lender and other financial institutions in this regard and after carefully analysis they give credit score. Businesses mostly pay money in order to get the license and official credit rating. This brings us to the other roles and facilities provided by the credit rating agencies such as: providing credit scores, credit reports and rating for marketing. Mainly these rating agencies can be segmented into two categories: for individuals and for businesses. Prominent names which need no introduction are Equifax, TransUnion and Experian among these names Experian is famous for corporate and commercial ratings. Plenty of other credit reporting agencies are available in the market, other than the above mentioned which provide the same service. Generally credit reporting agencies tie up with other financial institutions to get the relevant information regarding a client or a business (called credit data of the customer). In order to concrete the credit report these agencies seek other information to make the findings even stronger for example: they seek mobile bills payments frequency, credit card bill payments, even utility bills and rent payments are also considered for the finalization of a person’s credit report.
Then comes the concept of a trade line which shows the amount of money credited in borrower’s account, which provides the complete detail of borrower’s delays in payment, amount borrowed and after getting the information credit reporting agencies find out the charge offs on the client (what extra has been charged to the client). In order to make it even more authentic, the maintain reports remains in the record for around seven to eight years and then discarded accordingly. Moreover, to keep an eye on all the credit rating agencies there is FCRA (Fair Credit Reporting Act) which stops any malpractice among the official of a credit reporting agencies.