Credit Bureaus: Friend or Foe?

They exert enormous power over your life - and the lives of every other American adult. But what do you really know about the credit reporting agencies? Friend or foe? Fact or fiction?

Survey after survey suggests the typical American knows very little about consumer reporting agencies other than that they essentially control consumer credit profiles - and as a result, their buying power. And that is how these credit reporting agencies want it, argues Dr. Randy Padawer, a clinical psychologist whose research into consumer credit has been featured in Smart Money Magazine and the bestselling FICO 850 seminar for The Motley Fool.

"The three major credit bureaus truly want consumers to believe that they've each been blessed with an officially sanctioned franchise," says Padawer, who has consulted for Lexington Law, a consumer advocacy law firm whose credit repair services help clients dispute errors and other questionable negative information from their credit reports.

The fewer facts you know about the credit reporting agencies, the more difficult it will be to resolve a problem when one shows up on your credit file. And odds are an error will appear. Nearly 80 of credit reports contain errors, and approximately 25 contain errors serious enough to cause significant problems for consumers, according to research by the U.S. PIRG.

Here are some credit bureau fictions and the facts behind each fiction:

Fiction 1: There are only three credit bureaus.

Fact: Many organizations are in the business of collecting, compiling and processing credit information.

Fiction 2: The three major credit bureaus are official government entities.

Fact: "There are no official bureaus," Padawer says. "While most Americans perceive their credit reports to have at least the same legal standing as their driving records, the truth is that the government had no role in establishing the for-profit companies which produce them."

Fiction 3: Equifax, Experian, and TransUnion all record the same credit information.

Fact: Different creditors often report to different reporting agencies. In fact, there is no law that forces them to report to any of the credit bureaus at all. Credit bureaus do not share information either, so if you find an error on your report from all three agencies, fixing it with one of them does not mean the error will automatically come off your other two reports .

Fiction 4: Credit bureaus will act quickly to help me fix an error or remove inaccurate negative listings from my credit file.

Fact: Federal law requires Equifax, Experian, TransUnion, and all consumer reporting agencies to complete an investigation into a consumer complaint within 30 days of when it was first made. The credit bureau may decide to keep the disputed item on the credit report as is, update but not delete the listing, remove the listing, or deem the complaint frivolous. Given that it is easiest to simply deem your complaint as frivolous, many consumers find that their legitimate complaints get dismissed.

Increasingly, frustrated and fed up consumers are turning to professionals like Lexington Law to help them resolve credit report issues. Anyone who has disputed a listing on their credit report knows the process can be long, frusterating and perhaps without results. Involving a credit repair professional can achieve faster, better results.