Credit Bureaus or Credit Reference Agencies are organisations which collect information on individuals and / or legal entities to help a creditor decide if they should grant credit to a customer.

Credit Bureaus have been existence for a considerable period of time. The first Credit Bureaus were founded in 1830 in New York and in Europe at the end of the 19th century.

Credit Bureaus hold information on consumers such as identification data (name, date of birth, address and a unique identification number if this is legally allowed) and data concerning their credit history. However, the Credit Bureaus do not hold information on what you earn, your nationality, your employment or other sensitive personal data (e.g. religion, political preferences).

The credit history of a consumer can consist of positive and / or negative information, depending on the credit bureau’s system and the national laws. The national laws define the legal environment in which the Credit Bureau operates. The laws may define what kind of data and the degree of details that can be stored. In addition, data protection issues, banking laws and other regulations have to be respected, depending on the national legal system. In the EU, European regulations have to be followed as well.

Examples of negative information are the non-repayment of a credit or the non-payment of invoices from a mail order business or bankruptcies and / or insolvencies. Positive information includes data on outstanding and settled credit agreements, invoices from a mail order business that have been paid according to the contract; the customer has a bank current account or owns a credit card etc. The precise type of data which is stored also varies according to the bureau’s system and the applicable legislation.

It should be noted, that where a credit bureau stores both negative and positive data, the majority of the information will be positive.

Credit Bureaus offer a number of advantages to companies looking to grant credit. Firstly, they reduce the companies’ financial risks as they allow a company to check whether the client is solvent or not before they grant them credit reducing the likelihood of bad debts and therefore enabling companies to offer the products at a competitive price and reducing the cost to the customer.

Credit Bureaus provide companies with different kinds of information – depending on their data base and the legal environment. The services can for example be information about the customer’s creditworthiness, about their identity, about their account number, as well as address investigation and address updating.

A key factor in the ability of Credit Bureaus to help the companies to assess whether they should grant credit is the extent of the information they hold. The broader the data base, the more effective the credit decisions of the company will be. So for example the addition of non-bank data to the credit bureau system will help all companies have a deeper understanding of their customers and make better decisions.

However, it should be noted that it is the company itself which decides if they will grant credit to a customer based on their own credit risk strategy and not the credit bureau.