There are confusion and misinformation about how credit bureaus make money. I spent over a decade as a Sales Director with one of the big three consumer reporting agencies. May objective was to grow revenue. Feel confident in my authority to answer the question: “how do credit bureaus make money?”
There are myths and realities about how credit bureaus make money. Many people see the agencies as monsters bent on making money by ruining people’s lives, and several myths have surfaced.
- Consumer reporting agency revenue myths
- Paid to display negative information; earn money on low scores
- Agency 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 agencies, 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 bureaus to display negative information. He stated that banks gained the advantage with delinquent borrowers by having the agencies 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. The agencies pay data providers to collect, store and update, 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 risk scores are low and that there is no incentive to present accurate data. This claim is also invalid. Consumer reporting agencies 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 consumer-reporting agency to use based on a combination of price, and data quality or accuracy. The consumer-reporting agency that makes the most money is the one that does the best job of providing complete, accurate, thorough information at a competitive price.
The Reality of How Bureaus Make Money
The credit bureaus have a unique model for making money: lenders give them information free, and they then sell it back to them. The consumer reporting agencies sell data in four unique ways. They sell 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 consumer report: your payment history of borrowing obligations. Consumer reporting agencies make money when lenders purchase a report in connection with a consumer-initiated application.
It is important to note that in most transactions lenders use only one report. One consumer-reporting agency makes money, and at least two others do not – depending on how many agencies you include in the count. Consumer reporting agencies 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 consumer reports and make sound lending decisions. Lenders buy more data when they understand what it means. A plain vanilla consumer report has little value unless a lender knows what it means to a borrower’s 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 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 offers. The agencies provide lenders with lists of consumers who meet pre-defined criteria.
Marketers use the data for related marketing offers. Consumer identifying information reported by the lenders is also sold without accessing any protected 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 consumer-reporting agencies do with their personal information and the consequences associated with the negative information.
Credit bureaus make money by selling services directly to consumers. Monitoring services, fraud protection, and identity theft solutions are some of the services they provide.
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