Credit bureaus act as information brokers for consumer credit history. They are normally presented as agencies that sell their services to banks, mortgage lenders, credit card companies, retailers, and other businesses that grant credit.

The Agencies

There are three major national credit bureaus in the United States: Equifax, Experian, and TransUnion. Though they are different and each one reports in a different way, all three obtain and sell information in similar ways.

On the surface, the financial arrangement between lenders and credit bureaus does not make much sense: Credit granters provide consumer credit information to bureaus for free, then they pay to have credit information sent back to them. The credit bureaus are able to collect, aggregate, synthesize, and analyze the enormous quantity of information sent to them.

How They Make Money

Credit bureaus sell four data products: credit services, decision analytics, marketing, and consumer assistance services. Sentiment around these companies is not always high, as many believe the credit reporting bureaus have too much sway over the long-term decisions in the creditor's life. This means that the companies make money in ways that are not so obvious.

Credit Services: Credit services are what most people think of when it comes to credit bureaus. The credit bureau receives a request from a lender for a consumer credit report, which the bureau sells to the lender. Another way they make money through this method is by selling additional reports to consumers who either lose their report or want a second one per 365-day cycle.

Decision Analytics: Credit bureaus do not just want to sell a history of borrower payments. Instead, the bureaus package detailed transaction history with analytics about the way an individual interacts with certain debt. Lenders pay more for these reports.

Marketing: While it is not a traditional form of marketing, lenders that offer pre-approved credit are paying a marketing fee to a credit bureau for a list of consumers who meet predetermined requirements. Links to other products online or even direct advertising income can benefit these agencies.

Consumer Services: Credit bureaus also interact directly with consumers, usually through credit monitoring, identity theft protection, and fraud prevention. These services have become increasingly popular as the risk of identity theft has grown, meaning the companies are able to assign multiple tasks per worker.

The Bottom Line

Although many individuals believe that credit bureaus are the de facto enemy since an individual's credit score has such a major impact on their life, credit bureaus are able to make money through means such as data marketing and direct-to-consumer services like identity protection and credit monitoring.