There seems to be much confusion and misinformation about how credit bureaus make money. I spent over a decade as a Sales Director with one of the big three credit bureaus, and was tasked with growing revenues. So you can feel confident about my authority to answer the question: “how do credit bureaus make money?”
There are both myths and realities about how credit bureaus make money. Many people see credit bureaus as monsters bent on making money by ruining people’s lives, and several myths have surfaced. These myths will be explored and dispelled, and then the realities will be covered as outlined:
- Credit bureau myths
- Paid to display negative information
- Make money on low scores
- Credit bureau revenue realities
- Credit services
- Decision analytics
- Marketing services
- Consumer services
Myths about How Credit Bureaus Make Money
There are many myths and misunderstanding about how credit bureaus make money. The general population has a high level of distrust towards the bureaus, and much of the distrust is based upon faulty assumptions. These assumptions mostly revolve around negative information, and low scores.
Not Paid to Display Negative Data
Several years ago I attended a presentation made by the CEO of a credit repair company. In his presentation he claimed that the banks paid the credit bureaus to display negative information. That banks gained leverage with delinquent borrowers by having the bureaus display the negative information for other lenders to see.
This is patently false. The credit bureaus do not charge lenders to store and display data. In fact, the opposite is closer to the truth. Credit bureaus pay data providers to collect, store, and forward public record data from thousands of county halls of record.
Do not Profit from Low Scores
Another false claim is that credit bureaus make more money when negative information is present, when consumer credit scores are low, and that there is no incentive to present accurate data. This claim is also invalid. Credit bureaus charge the same rate for a report regardless of what information it contains.
Credit bureaus make money by selling data to lenders. They compete fiercely to gain a greater share of the market. Lenders need accurate information in order to make correct lending decisions. Lenders determine which credit bureau report to use based upon a combination of price, and data quality or accuracy. The credit bureau that makes the most money is the one that does the best job of providing complete, thorough information and a competitive price.
The Reality of How Bureaus Make Money
The credit bureaus have a unique model for making money: lenders give them information for free, and they then sell it back to them. There are four principal ways bureaus sell data: credit services, decision analytics, marketing services, and consumer services.
Credit services are the core offering of most bureaus. Most consumers are familiar with the concept of a credit report: your payment history of credit obligations. Credit bureaus make money when lenders purchase a credit report in connection with a consumer initiated application.
It is important to note that in most transactions lenders use only one credit report. One bureau makes money, and at least two others do not – depending upon how many credit bureaus you think there are. Credit bureaus need to focus on accuracy in order to gain a greater share of these transactions.
Decision analytics is a value added service that helps credit bureaus sell more data, and make more money on each transaction.
Decision analytics make it easier for lenders to buy credit reports and make sound lending decisions. Lenders buy more data when they better know what it means. A plain vanilla credit report has little value unless a lender knows what it means to a borrowers propensity to respond to an offer, or manage a loan obligation over time. They are also willing to pay a higher price for data packaged with analytics, than they are for simple raw credit report information.
Credit bureaus make money from selling marketing services designed to help lenders target, acquire, and develop new lending accounts. The most common marketing service is preapproved credit offers. The bureaus provide lenders with lists of consumers who meet pre-defined credit criteria.
The data files are also used for non-credit related marketing offers. Consumer identifying information reported by the lenders is also sold without accessing any credit information to support these marketing efforts.
Consumer services make up the newest and fastest growing revenue stream for credit bureaus. As mentioned earlier there is much misinformation and a general lack of trust. Consumers are fearful of what credit bureaus do with their personal information, and the consequences associated with negative information.
Credit bureaus make money by selling services directly to consumers. Credit monitoring services, fraud protection, and identity theft solutions as some of the services they provide.
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