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  • Woman looking at her credit report using a magnifying glass learning about credit bureaus

    What is a Credit Bureau and How Does it Work?

    Gursh Singh

    You hear a lot about them, but have you ever wondered, what is a credit bureau? Who are these mysterious agents that seem to operate in a shroud of secrecy? If you’ve applied for credit cards or checked your credit report in the past, you’re probably familiar with the big two: Equifax and TransUnion. But what you probably don't know is how they go about their business and what sort of laws they're bound by.

    What is a Credit Bureau and What Do They Do

    The official credit bureau definition, at least according to the Merriam-Webster dictionary, is “a private business that compiles information on consumers’ creditworthiness and provides this information to lenders.” Pretty straightforward, right? Credit bureaus (sometimes referred to as credit reporting agencies) operate independently and tend not to share information with each other, which is why your Equifax score may be different from your TransUnion score. Some credit card companies and financial issuers use both, others choose one or the other. 

    To determine your score, credit bureaus compile information from lenders like banks, credit card issuers, and collection agencies—and they do it as soon as you open your first credit account. They also look at public records that can contain information about bankruptcy, tax liens, foreclosure, and repossession. All this adds up to one number—your credit score.

    What is a Credit Score?

    Your creditworthiness is based on five main factors that determine your credit score, which is a number between 300-900. (The higher your credit score is, the better.) And each factor is weighted differently as a percentage of your total score:

    • Bill payment history (35%). A record of on-time and missed payments, and debts in collection. (Credit bureaus only collect information, not money, so there's no such thing as credit bureau collections.)
    • Credit utilization (30%). How much credit you have versus how much debt you have. Utilizing less than 30% of your available credit is ideal.
    • Age of your credit history (15%). The older the better, as credit bureaus can use this as a predictor of your spending behaviours.
    • Credit mix (10%). Showing diversity in the different types of credit you have, such as revolving credit (i.e., credit cards), installment loans (e.g., auto loans), etc., demonstrates you can handle a variety of debt products.
    • Number of inquiries (10%). This shows how much credit you’ve applied for recently; many inquiries in a short period of time sends up red flags that you may be in financial trouble.

    For more on credit score calculations, check out our post on credit reporting, Understanding Canadian Credit Scores.

    What do Credit Bureaus Do?

    Credit bureaus do more than just collect credit information. They also maintain non-credit information, such as your present and past addresses, date of birth, and salary details. This information isn’t used to determine your credit score, but different companies and agencies can access this information to confirm your identity. That includes employers, insurers, and landlords.

    Credit Bureau Laws

    Most Canadian provinces have credit reporting legislation outlining the practices credit bureaus must follow in order to protect consumers’ rights. This also includes any agencies requesting the information credit bureaus collect. The most basic requirements are:

    • Requestors must have a permissible purpose. Acceptable requests include credit decision, debt collections, employment or tenancy decisions, and insurance underwriting. 
    • Requestors must advise consumers if they obtained information in order to take an adverse action. Adverse actions include denying a credit or employment application and increasing lender fees/charges.
    • Bureaus must provide consumers a copy of their credit report upon their request. Requesting your report does not constitute an inquiry and therefore doesn't affect your credit score.
    • Bureaus must investigate any items on the report the consumer disputes. If the investigation turns up an error, the credit bureau must report this to anyone who received your credit file within a specified time frame (this varies by province).
    • Bureaus must maintain positive credit information for 20 years. This benefits consumers by recognizing their positive history, even if more recent information is negative in nature.

    Obtaining Your Credit Report

    Now that we’ve put to bed the question of, “what is a credit bureau?” want to see what they’re reporting on you? You can go directly to the Equifax and TransUnion credit reporting websites to request a copy of your credit report. It's free, but if you want to know your credit score, you're going to have to pay a small fee. Or you can book a free Credit Building Counselling session with Credit Canada. We can review your credit report with, get your credit score, and discuss any questions you might have. Just call 1.800.267.2272 to book. And if you don’t like what you see, our certified Credit Counsellors can give you advice on how to improve your credit score, or rebuild your credit if you’re struggling financially. The call is completely free and confidential, so let’s boost that score together!

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    Topics: Credit Building

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