Credit bureau or credit information center is an agency that collects information on the credit history of individual consumers in a country. It is usually a centralized agency with plenty of information stored in a computer database that reflects the credibility of consumers. This information is highly useful for lending institutions in rendering loans to individual customers.
A credit bureau is set up by the government to ensure smooth operation of financial transactions and for disbursement of money of the banks. In some countries, the bureau or agency is also set up by banks and the information between these banks is shared through this bureau. The bureau itself acts like a professional organization storing individual data about consumers. The bureau enjoys a certain level of relationship with different agencies such as banks, financial organizations, courts etc. with whom records about individual consumers are available.
These consumers are usually the people who have made previous borrowings and their frequency of repayments are recorded. The data from these agencies are collected and collated by the credit bureau and kept in the database. Any bank seeking information about a particular applicant seeking credite can refer to this database. It may buy the information as required or it could already be subscribing to the information available with the credit bureau.
The information about individual consumers is very significant for the banks. In fact, the consumers should also be aware about their own credit history before they seek out credite from the banks. All the information about their past credite taken from formal financial institutions is stored in the database of the credit bureau. Consumers also need to verify if the information stored in the credit bureau is correct or not. There could be also some error involved so consumer advocates motivate consumers to be on their alert and check information about themselves from the credit bureau.
Credit history is an important determinant based on which banks extend credite to individuals and businesses. The credit history collected from credit agencies helps the banks to develop the credit score card to finally decide to sanction the loan. credit history also enables the banks to determine the rate of interest. If the credit history has not been good to a certain extent, the bank may then charge a higher rate of interest for the borrower. However, for borrowers who have a good credit history, they can enjoy a lower rate of interest. Hence, a credit-based information turns out to be highly useful data both for the borrower as well as for the lending institution.
A borrower has to ensure that his financial credibility is strong before applying for a loan from a bank or from any other formal financial institution. In order to keep a good credit history, it is not only important to be regular with repayments but also check the borrower’s credit data at the credit bureau frequently to avoid any confusion while seeking fresh loans. In this manner, the borrower is safe and his financial credibility remains stronger.