The Big Three credit bureaus — Experian, Equifax and TransUnion — keep records of loans for an estimated 200 million U.S. consumers. But there are lesser-known companies that track other pieces of your financial life. Collectively they are known as the fourth bureau. They can determine whether you qualify for credit and how much you pay for it. So it’s important to understand how this data may be shaping your financial future.
1. The fourth bureau collects what the Big Three don’t.
A range of data falls under the fourth-bureau umbrella, including rent payments, cellphone and utility bills, magazine subscriptions and gym memberships. The Big Three don’t include this information because it can be difficult to collect and verify and because there is debate over whether it can predict the likelihood of a consumer to pay back a loan. There is no industry standard for the type of data that can be used in the fourth bureau. The new Consumer Financial Protection Bureau has just begun to study the issue and is expected to release its first report this week.
2. Thirty million U.S. consumers or more do not show up in the Big Three or have thin credit histories.
This statistic comes from a 2009 report by the Federal Deposit Insurance Corp. on consumers with little or no access to mainstream financial services, either because they do not qualify or they choose not to use it. That puts them in a Catch-22: Without a history of traditional loans, they cannot build a credit profile in the Big Three. But without a credit profile, they cannot get a traditional loan.
Other groups have higher estimates of the number of U.S. consumers in this position. FICO has pegged it at 54 million, while the National Credit Reporting Association has said it is closer to 70 million.
3. Fourth-bureau data can help you qualify for a loan or a better rate — or not.
For consumers outside the Big Three, the data in the fourth bureau can help them establish a track record that proves they are financially responsible. Showing that you’ve paid other bills on time may help persuade banks to lend you money. But not all of them are willing to accept the data in place of a traditional credit history.
On the other hand, if you have been late on your bills, it may come back to haunt you even if your record in the Big Three is clean.
4. You may be charged a fee to look at your records.
Federal regulations require the Big Three to provide everyone with a free copy of their credit report once a year. But the fourth bureau does not have to follow that rule.
Companies that collect data on rent, checks, medical history and employment or insurance claims are required only to create a “streamlined’’ system for consumers who request a copy of their reports. Firms that gather other types of information don’t even have to do that.
The fourth bureau also is allowed to charge consumers as much as $11 for their files. However, anyone who has been denied credit or gotten a bad interest rate can get one free report from the fourth bureau.
5. No one knows how accurate the reports are.
Accuracy has been a major issue for the Big Three as well as the fourth bureau. Estimates for the percentage of reports with errors in the main credit bureaus range from 1 percent to 25 percent, depending on who is conducting the study. The Consumer Financial Protection Bureau is slated to release a report on the issue this week. But it will address only the Big Three, leaving the fourth bureau a mystery.