The following are some of the most common terms and phrases that consumers will typically encounter as they build repair their credit and finances.
Collection Agency
Often acting as agents of creditors and lenders, collection agencies actively pursue payments of unpaid and long-overdue debts owed by companies and consumers. Although some creditors have departments that handle their debt collection or sell the rights to those debts (to a debt buyer), a true collection agency is hired by a creditor — but the creditor still owns the rights to the debt. In the United States, debt collection is regulated by the Federal Trade Commission and the Fair Debt Collection Practices Act.
Credit Bureau
A credit bureau is a company that gathers credit information, data and records about individuals and businesses from “data furnishers,” such as banks, lenders, collection agencies and other credit providers. The credit bureau then manages and distributes that credit information to authorized creditors, property managers, employers and credit risk assessors.
Consumer Credit Protection Act
Passed by Congress in 1968, the Consumer Credit Protection Act is a package of different programs intended to protect consumers from predatory and abusive credit practices. For consumers trying to repair credit grades, Title III is particularly important, because it deals with garnishment of unpaid debts and protects employees from being fired because of a wage garnishment order.
Consumer Reporting Agency
Consumer reporting agencies (CRAs) are American versions of credit bureaus that gather, maintain and distribute credit information related to individual consumer activities. The three most well-known CRAs are Equifax, Experian and TransUnion. CRAs are restricted by the Fair Credit Reporting Act. In 2000, the three major CRAs were fined by $2.5 million by the federal government for not responding to consumer requests for information about their credit.
Credit Score
Your credit score is a statistical measurement of your credit history. Creditors and lenders use credit scores to determine eligibility for their financial products. The most popular credit scoring system is the FICO score, developed by the Fair Isaac Corporation. Credit scoring systems are intended to remove much of the subjectivity that often affected credit and loan applications by establishing an objective scoring system that only looked at credit history. Most credit scoring systems look at only the most recent two to seven years.
Debt Buyers
Similar to collection agencies, debt buyers are in the business of pursuing individuals and businesses who have past-due debt obligations. However, debt buyers are typically not the lenders and creditors who originated the debt. Rather, they purchase the debt obligation from the originating creditor — usually for a fraction (3% to 6%) of the face value of the debt. Original creditors sell debt obligations because they don’t have the facilities, resources or time to collect on a debt, and decide to get something rather than nothing. They are governed by the Fair Debt Collection Practices Act, although because they are not creditors, many debt buyers are not concerned about maintaining a long-term relationship with the borrower and have been accused of abusive (even illegal) debt collection practices.
Equifax
Founded in 1899 as the Retail Credit Company, Equifax is the oldest of the U.S. consumer credit reporting agencies. By 1920, it was providing consumer credit reporting services throughout the U.S. and Canada. In 1975, it changed its name to Equifax.
Experian
Founded in 1901 as a subsidiary of TRW (and originally called TRW Information Services), Experian was acquired by Ireland-based CCN Systems, which then adopted its name. It is now a global credit information provider with operations in more than three dozen countries and a North American operational headquarters in Costa Mesa, California. Experian is one of the three biggest consumer credit reporting agencies in the U.S. today.
Fair and Accurate Credit Transaction Act (FACTA)
In 2003, Congress amended the Fair Credit Reporting Act to require consumer credit reporting agencies to provide consumers with one copy of their credit report per year, upon request. Such requests are typically handled online at AnnualCreditReport.com
Fair Debt Collection Practices Act
Enacted in 1978 as Title VIII of the Consumer Credit Protection Act, the Fair Debt Collection Practices Act was designed to protect consumers from abusive debt collection practices. For example, this Act regulates when and where debt collectors may contact debtors. Collectors are also strictly prohibited from sharing the debtor’s credit information with any other parties, including employers and co-workers. The Fair Debt Collection Practices Act is administered by the Federal Trade Commission (FTC).
Fair Credit Reporting Act
The Fair Credit Reporting Act (FCRA) was enacted in 1970 and legally established protection for consumer credit records. It was became Title VI of the Consumer Credit Protection Act. Nearly 30 years later, FCRA was amended by the Fair and Accurate Credit Transaction Act (FACTA) in 2003, which required the CRAs to give consumers one (1) free credit report each year.
Federal Trade Commission (FTC)
The Federal Trade Commission is the government entity tasked with regulating the consumer credit protection statutes and regulations of the Fair Credit Reporting Act.
FICO
FICO is the brand name for a credit scoring system developed by the Fair Isaac Corporation. Founded by Bill Fair, an engineer, and Earl Isaac, a mathematician, in 1956, the Fair Isaac Corporation is the company behind the biggest consumer credit scoring system used in America today and is currently headquartered in Minneapolis, MN. The company developed other credit scoring programs, such as the NextGen score, but the traditional FICO score is still the best known and most widely used.
TransUnion
The youngest of the three major consumer credit reporting agencies, TransUnion was created by the Union Tank Car Company with its 1969 purchase of the Credit Bureau of Cook County and subsequent acquisition of other credit reporting bureaus. The Chicago-based TransUnion now provides consumer credit data in more than two dozen countries.