Credit bureau
A credit bureau is a data collection agency that gathers account information from various creditors and provides that information to a consumer reporting agency in the United States, a credit reference agency in the United Kingdom, a credit reporting body in Australia, a credit information company in India, a Special Accessing Entity in the Philippines, and also to private lenders. It is not the same as a credit rating agency.
Description
A consumer reporting agency is an organization providing information on individuals' borrowing and bill-paying habits. Such credit information institutions reduce the effect of asymmetric information between borrowers and lenders, and alleviate problems of adverse selection and moral hazard. For example, adequate credit information could facilitate lenders in screening and monitoring borrowers as well as avoiding giving loans to high risk individuals. Lenders use this to evaluate credit worthiness, the ability to pay back a loan, and can affect the interest rate and other terms of a loan. Interest rates are not the same for everyone, but instead can be based on risk-based pricing, a form of price discrimination based on the different expected risks of different borrowers, as set out in their credit rating. Consumers with poor credit repayment histories or court adjudicated debt obligations like tax liens or bankruptcies will pay a higher annual interest rate than consumers who don't have these factors. Additionally, decision-makers in areas unrelated to consumer credit, including employment screening and underwriting of property and casualty insurance, increasingly depend on credit records, as studies have shown that such records have predictive value. At the same time, consumers also benefit from a good credit information system because it reduces the effect of credit monopoly from banks and provides incentives for borrowers to repay their loans on time.In the U.S., consumer reporting agencies collect and aggregate personal information, financial data, and alternative data on individuals from a variety of sources called data furnishers with which the reporting agencies have a relationship. Data furnishers are typically creditors, lenders, utilities, debt collection agencies and the courts that a consumer has had a relationship or experience with. Data furnishers report their payment experience with the consumer to the credit reporting agencies. The data provided by the furnishers as well as collected by the bureaus is then aggregated into the consumer reporting agency's data repository or files. The resulting information is made available on request to customers of the consumer reporting agencies' for the purposes of credit risk assessment, credit scoring or for other purposes such as employment consideration or leasing an apartment. Given the large number of consumer borrowers, these credit scores tend to be mechanistic. To simplify the analytical process for their customers, the different consumer reporting agencies can apply a mathematical algorithm to provide a score the customer can use to more rapidly assess the likelihood that an individual will repay a particular debt given the frequency that other individuals in similar situations have defaulted. Most consumer welfare advocates advise individuals to review their credit reports at least once a year to ensure they are accurate.
In addition to providing credit information, these services have become authoritative sources of identity information against which people can be verified using an identity verification service and knowledge-based authentication.
Canada
In Canada, there are two credit bureaus : Equifax Canada and TransUnion Canada. They are private companies that collect information about a consumer’s credit accounts, payment history, and other information such as debts sold to a collection agency, and bankruptcies.Credit bureaus in Canada gather this information from lenders and creditors who report it to them. However, it’s important to note that not all lenders and creditors report to the credit bureaus, some may only report information to one, while others may report to none. Other sources like collection agencies and public records information are also reported to the credit bureaus.
These credit reporting agencies are regulated by the governments on a provincial and territorial level. Most provinces in Canada have their own credit reporting legislation in place that dictates how credit reporting agencies may share consumer information. There's also a federal legislation called the Personal Information Protection and Electronic Documents Act that must be abided by the credit reporting agencies.
Credit bureaus share consumer information in the form of a credit report to third parties with whom a consumer has given permission to. This includes banks, credit unions, lenders, credit card companies, and even landlords. These third parties use their credit report to help them make decisions about the consumer, such as whether to approve for a loan or credit card.
India
Credit Information Bureau Limited, India's first Credit Information Bureau was established by the Reserve Bank of India to improve the functionality and stability of the Indian financial system by containing non-performing assets while improving credit grantors' portfolio quality.CIBIL is now promoted by TransUnion International Inc. to provide comprehensive credit information by collecting, collating and disseminating credit information, pertaining to both commercial and consumer borrowers, to a closed user group of members.
RBI approved three other credit bureaus in 2010 – CRIF High Mark, Equifax and Experian. The consumer credit scores in India range from 300 to 900.
High Mark launched India's first micro finance bureau in early 2011 and today operates the world's largest micro finance bureau besides offering traditional bureau services for the Retail lending industry. CRIF High Mark is India’s first full-service credit bureau serving all borrower segments – Retail, Agri & Rural, MSME, commercial and Microfinance.
Iran
Iran Credit Scoring Company is the sole licensed national consumer reporting agency offering credit information services to respective members in Iran. ICS is a private equity company established in 2006, by all Iranian banks and other financial institutions such as leasing and insurance companies, operating in the Islamic Republic of Iran within the context of the current banking act and regulations issued by Iran Ministry of economic Affairs and Finance and Central Bank of Iran.The main Objective of ICS is to help credit providers make improved lending decisions quickly and more objectively. To achieve this, ICS intends to aggregate credit related information among participating members to provide credit providers with a more complete risk profile of the customer.
The ICS tend to aggregates credit related information among participating members to provide the credit providers with a more complete risk profile of the customer. Participating members disclose credit related information to and obtain information from the CRA to assess the credit worthiness of their existing and prospective customers, which enhances the credit providers risk assessment capabilities to determine whether or not the customer is likely to repay.
Pakistan
The Electronic Credit Information Bureau was established by the State Bank of Pakistan in December, 1992. Under section 25 of the Banking Companies Ordinance, 1962, the SBP mandates that all financial institutions in Pakistan including banks, developmental financial institutions and micro finance banks are required to use the eCIB software for monitoring credit reports. SBP controls updates to the database, updates the reports and monitors the software. All member financial institutions are required to submit entire borrowers' records online to eCIB every month within two weeks after the end of the month.Aquitas Information Services under the brand name TASDEEQ is the first licensed private Credit Bureau in Pakistan.
Philippines
In 1981, Ferdinand Marcos, then President of the Republic of the Philippines, issued a Letter of Instructions No. 1107 mandating the Central Bank of the Philippines to analyze the probability of establishing and funding the operation of a credit bureau in the Philippines due to the disturbing increase of failures on corporate borrowers.In adherence to the order, Central Bank of the Philippines organized the Credit Information Exchange System under the department of Loans and Credit. It was created to engage in collating, developing and analyzing credit information on individuals, institutions, business entities and other business concerns. It aims to develop and undertake the continuing exchange of credit data within its members and subscribers and to provide an impartial source of credit information for debtors, creditors and the public. This will also cooperate and guide government agencies in their credit information requirements.
On April 14, 1982, Credit Information Bureau, Inc. was incorporated as a non-stock, non-profit corporation.
In 1982, Credit Information Bureau, Inc. was established through the power of Presidential decree 1941 and created under Central Bank of the Philippines, now Bangko Sentral ng Pilipinas department of Loans and Credit, the Securities and Exchange Commission and the Financial Executives Institute of the Philippines ; to initiate a credit information exchange system in the country.
In 1997, Credit Information Bureau, Inc. was incorporated and transformed into a private entity and became CIBI Information, Inc.
In 2008, Republic Act No. 9510 also known as Credit Information System Act of 2008 gave way to the creation of Credit Information Corporation as the new government-owned and controlled credit registry in the country.
In 2011, TransUnion Information Solutions, Inc. begins operations in the Philippines, partnering with Bank of the Philippine Islands, Banco de Oro Unibank, Metrobank Card Corporation, HSBC and Citibank Philippines to launch the country's first comprehensive, international private credit bureau.
Contributing TransUnion members are given access to credit information in the form of a credit report, consumer bureau score and additional value-added services. TransUnion Philippines aims to strengthen the Philippine financial system through increased access to credit for borrowers and reduced risk to lenders.