Credit Bureaus and Rating

Agencies Industry
Paige Denton
April 24, 2019
As requested by YLC partners, this report presents information on the credit industry. It will be
useful for YLC consultants serving clients within this industry. This report provides information
on the Credit Bureaus and Rating Agencies industry, specifically evaluating its performance,
relevant features, outlook, products, markets, competition, operating conditions, industry leaders,
and information on the Equifax data breach.

Performance
The Credit Bureaus and Rating Agencies industry is expected to grow. Five years from 2018, the
revenue of this industry is expected to increase at 6.1% per year to a total revenue of almost $11
billion (Amir, 2018). This is a strong indicator of promising industry performance. The trends of
credit bureaus and rating agencies tend to follow the patterns of the economy (Amir, 2018), so a
growing economy typically indicates growth in this industry.

During the great recession of 2008, this industry faced hardships just like the rest of the
economy, but the increase in consumer spending since then has helped this industry back on its
feet. Consumer spending increased at an estimated annual rate of 2.9% over the five years to
2018 (Amir, 2018). Therefore, this industry has recovered from its set-back.

Relevant Features
Consumer credit is one important feature of the Credit Bureaus and Rating Agencies industry. It
includes retail credit, service credit, and cash credit. Retail credit refers to retail sales, more
specifically retail credit cards. Service credit refers to credit related to services provided, such as
doctor, dentist, lawyer, etc. Cash credit refers to lending money directly to consumers, examples
would be personal finance companies or loan companies (“Credit Bureaus,” 2018).

Mercantile credit is the other important feature. It includes commercial credit and cash credit.
Commercial credit refers to a manufacturer or supplier providing goods to a company that sells it
to consumers. Credit reporting services provide ratings for these companies. Cash credit allows
businesses to borrow cash to acquire assets. The lenders seek credit ratings for these businesses
(“Credit Bureaus,” 2018).
 Consumer Credit Mercantile Credit

Retail Credit Commercial Credit

• Credit cards • Manufacturer/supplier
provides goods to
Credit Bureaus and Rating
Service Credit • company for resale
Agencies
• Services provided
• (Doctor, dentist, lawyer) Cash Credit
• Businesses borrow
Cash Credit cash
• Consumers borrow cash

Figure 1: Comparing the two different features of the Credit Bureaus and Rating Agencies
Industry (consumer credit and mercantile credit). (Image sources:
https://www.istockphoto.com/photos/dollarsign?sort=mostpopular&mediatype=photography&ph
rase=dollar%20sign, https://www.valuepenguin.com/gap-credit-card)

Outlook
The passage of the Fair Credit Reporting Act (FCRA) proved that consumer credit is growing in
importance. Since its passage, consumers and the economy have been more concerned with the
importance of credit. Austin H. Krist from the Columbia Law Review argues that demand for
credit reports has increased, stating, “By 1994, credit bureaus received more than one and a half
million requests for credit reports every day” (2015). Since the passage of this act, credit has
become a vital aspect of the consumer economy, and its presence is in every-day business
transactions.

The government may begin more regulation of credit reporting agencies. Errors in credit
reporting are a result of the government’s negligence to enforce the requirements of the FCRA
(Krist, 2015). More accurate and developed reports are beneficial to the economy, because they
give the U.S. a growth advantage over other countries in competition (Krist, 2015). Because of
the issue of errors and the importance of accurate reports for the economy, it will be beneficial
for the government to provide stronger regulation of the FCRA’s requirements.

The Community Reinvestment Act (CRA) is influencing consumer credit market activity. It has
expanded the impact of consumers in the credit marker, with a nine percent increase in accounts,
and the number of people who have a record with CCP/Equifax increased seven percent
(Butcher, 2017). Individuals who don’t have a score or have a low activity record decreased 0.5
percentage points as well (Butcher, 2017). The CRA is shown to be expanding the credit market
for low- and medium-income areas.
Products
The primary services provided in this industry include commercial credit rating and reporting
services and debt collection and risk management services. Credit reporting agencies are used to
evaluate the risks for debt and credit issuance by businesses (Amir, 2018). Debt collection and
risk management services allow clients to locate their debt or missing accounts and better assess
their financial portfolios (Amir, 2018). Other services include credit card marketing, fraud
detection services, and credit risk consulting

The National Credit Reporting Association (NCRA) and Mortech, a technology software
company, released a product in 2011: an instant credit reporting agency portal. The President of
Mortech, Dan Kracl, discussed the portal, mentioning how it makes the loan process much faster
and reduces costs of time and approval of loans, (“NCRA and Mortech Releases New CRA
Portal,” 2011). This product from the NCRA will significantly help lenders and borrowers in
their loan process.

Markets
One specific market within this industry is banks and other financial institutions, including credit
card and loan companies. These account for the largest market segment. They were expected to
contribute to 41.5% of the industry revenue in 2018 (Amir, 2018). This market segment is so
large, because credit rating and reporting agencies are used during the credit application process.
By the end of 2017, the United States had around 364 million open credit card accounts (“Credit
Card Ownership Statistics”, 2014). Credit card issuance is a large part of American society.

Businesses account for the second largest market segment. They were expected to contribute to
31.0% of 2018 industry demand (Amir, 2018). Investors and debt issuers use the services
provided by credit rating agencies, specifically looking at credit scores and credit history, in
order to evaluate the risks associated with giving out loans, and to decide appropriate interest
rates.

Competition
The credit bureaus and rating agencies industry has very high competition due to high barriers to
entry. The four largest corporations in this industry, Experian PLC, S&P Global Inc., Moody’s
Corporation, and Equifax Inc., contributed to 69.1% of total industry revenue in 2018 (Amir,
2018). The Securities and Exchange Commission requires investors, businesses, and debt issuers
to use a nationally recognized statistical rating organization (NRSRO) to determine risk, interest
rates, issue debt securities, or other services provided by CRAs (Amir, 2018). This guideline
significantly creates higher standards for companies that wish to offer these services.

Credit bureaus have the Fair and Accurate Credit Transactions (FACT) act, which regulates who
can access personal credit information. It also allows consumers to obtain their free credit report
once a year from only three specific companies (Amir, 2018), which helps these larger
companies and hurts smaller ones.
Obtaining multiple ratings from different agencies in this industry has proved to increase
accuracy. Because of high competition, rating agencies have made stronger efforts in the
accuracy of their ratings, which leads to more information being produced (Morkoetter, Stebler,
& Westerfeld, 2016). This proves that having multiple ratings from different companies
improves the knowledge on individual credit reports and increases accuracy, therefore,
increasing competition benefits rating quality.

Operating Conditions
The credit bureaus and rating agencies industry has volatile revenue that flows with the trend of
the economy. During an expansion, when borrowers tend to be “creditworthy,” lenders are more
inclined to issue loans, credit, and better interest rates (Schroeder, 2013). However, during
contractions, the lower credit ratings of businesses and consumers lead indicate financial
instability, which contributes to the tendency of lenders to restrict these loans, credit, and good
interest rates (Schroeder, 2013). This is a time when a monetary stimulus is needed most though,
so the economy finds itself in a Catch-22.

Industry Leaders
Equifax is one major credit reporting company. They supply credit reports and other financial
information on people and businesses to financial seekers. They also help with identity fraud
protection. In 2017, Equifax had revenue of almost $3.4 billion (“Credit Bureaus,” 2018). They
operate across many different continents, though they are headquartered in the United States.

Moody’s Corporation is another major industry leader. They offer many products and services
related to credit ratings, economic trends and data, and financial risk. In 2017, Moody’s
Corporation had revenue of about $4.2 billion (“Credit Bureaus,” 2018). They operate in 42
countries.

Experian Information Solutions Inc. is another big company within this industry. Their consumer
services include credit scores and reports, identity theft protection, credit card and loan matching,
and education on personal finance. They also offer services for businesses involving risk, fraud,
debt, marketing, etc. In 2017, Experian had revenue of around $4.3 billion (“Credit Bureaus,”
2018). They also operate across the globe, but they are headquartered in Dublin.

$3.4 billion $4.2 billon

$4.3 billion
Figure 2: Comparing the 2017 revenue for each major company in this industry. (Image sources:
https://www.youtube.com/user/Equifax, https://www.markets.co/piper-jaffray-reiterates-their-
hold-rating-on-moodys-corp/, https://www.dealsplus.com/coupons/experian.com)

Equifax Data Breach

Equifax holds the personal information of a large amount of people, including their financial
history, addresses, and social security numbers. In 2017, they announced that a data breach
caused 209,000 consumer credit card numbers to be hacked (Pike, 2017). This caused their stock
price to fall, and lawsuits were filed against them. As a result, they offered free credit monitoring
services and other protections to their customers (Pike, 2017). This incident was very costly, and
Equifax is still rebuilding.

Conclusion
This report summarized information on the Credit Bureaus and Rating Agencies industry,
specifically evaluating its performance, relevant features, outlook, products, markets,
competition, operating conditions, industry leaders, and information on the Equifax data breach.
For any further questions, please contact Paige Denton at pdenton@email.arizona.edu.
 References

Amir A. (2018, December). IBISWorld Industry Report 56145. Credit Bureaus & Rating
Agencies in the US. Retrieved from IBISWorld database.

Butcher, K. F., & Muñoz, A. P. (2017). Using credit reporting agency data to assess the link
between the community reinvestment act and consumer credit
outcomes. Cityscape, 19(2), 85-108. Retrieved from
http://ezproxy.library.arizona.edu/login?url=https://search-proquest-
com.ezproxy4.library.arizona.edu/docview/1930065583?accountid=8360

Credit Bureaus. (2018). Gale Business Insights: Global Collection. Gale, a Cengage
Company. Retrieved from
http://bi.galegroup.com.ezproxy1.library.arizona.edu/global/article/GALE%7CIRCPDU7
89956876/dffb5817d8a07cb6c0f9cc2a67b90f4a?u=uarizona_main

Credit Card Ownership Statistics. (2014). CreditCards.com. Retrieved from

https://www.creditcards.com/credit-card-news/ownership-statistics.php

Krist, A. H. (2015). Large-Scale Enforcement of the Fair Credit Reporting Act and the Role of
State Attorneys General. Columbia Law Review, 115(8), 2311-2348. Retrieved from
http://ezproxy.library.arizona.edu/login?url=https://search-proquest-
com.ezproxy1.library.arizona.edu/docview/1787993618?accountid=8360

Morkoetter S., Stebler R., & Westerfeld S. (2017). Competition in the credit rating Industry:
Benefits for investors and issuers. Journal of Banking and Finance, 75, 235-237.
Retrieved from https://www-sciencedirect-
com.ezproxy1.library.arizona.edu/science/article/pii/S0378426616301509

The National Credit Reporting Association and Mortech Releases New Credit Reporting Agency
Portal. (2011). Professional Services Close – Up. Retrieved from
http://ezproxy.library.arizona.edu/login?url=https://search-proquest-
com.ezproxy4.library.arizona.edu/docview/852877204?accountid=8360

Pike, George H. (2017) Equifax: Yet Another Data Breach. Information Today,17. Retrieved
from http://link.galegroup.com/apps/doc/A511455435/AONE?u=uarizona_main&sid=A
ONE&xid=ec815251

Schroeder, S. (2013). A template for a public credit rating agency. Journal of Economic Issues,
47(2), 343+. Retrieved from
http://link.galegroup.com.ezproxy4.library.arizona.edu/apps/doc/A334485742/BIC?u=uar
izona_main&sid=BIC&xid=36fb9b39