What you need to know about the fourth bureau
In colloquial English, "fourth" has taken on the occasional status of an unofficial suffix, typically to describe the addition of a new element to a concept ordinarily involving only three things. There's the hypothetical notion of a "fourth dimension" to supplement the three physical dimensions we know so well, for example. Outside the realm of bizarre speculation, there's the concept of the fourth wall in theater and film, in which characters somehow directly acknowledge or communicate with the audience. And the news media has been referred to as the fourth estate for centuries, in reference to its presumed function as a monitoring agency independent of the three-estate or -caste system of imperial-era Europe and Asia.
"The 'fourth bureau' may play a prominent role in credit decisioning for many individuals."
Recent years have seen a new addition to the collection of "fourths" - including the "fourth bureau." This concept will, for numerous consumers, significantly affect the process of applying for loans, securing apartment rentals and completing various other essential tasks that relate to credit. Let's take a look at the fourth bureau and its use of what is essentially alternative credit data, as well as ways by which people can use it to their advantage:
How the fourth bureau began
According to the Pittsburgh Post-Gazette, a Columbus, Ohio-based company called Innovis, founded in 1970, was the first to offer services that are now considered to be the bread and butter of the fourth bureau. It provides businesses with fraud protection, credit reporting, data collection and identity verification processes - much like the acknowledged "Big Three" credit bureau triumvirate of Experian, Equifax and TransUnion always has. Innovis's operations differ in that it aggregates this sort of consumer data in a manner designed to help clients more easily plan marketing campaigns: Names of consumers will often end up on direct mail or email marketing lists.
As smaller firms with similar value propositions began forming to compete with Innovis, their operations also became part of this offshoot of the credit industry. Eventually, Consumer Reports, in a 2008 post on its affiliate blog Consumerist, would coin "fourth bureau" as a term. While that piece referred specifically to Innovis, use of the term now typically covers the whole conglomeration of credit data firms outside of the Big Three.
Sources of fourth-bureau data
It's quite important to stress that everything Innovis does - and, all things being equal, other fourth bureau companies' activities as well - is completely above board. Much of the data used is a matter of public record, and the information that isn't must be obtained with an individual's awareness (usually included in agreements consumers make when engaging in various services). According to ClearPoint, some of the records used include utility bills, check-cashing service transactions, phone bills, medical bills, various subscription services and more.
What it means to consumers
In a nutshell, all of the information described above is a large part - though not necessary all - of what constitutes an alternative credit report. Each collection of data is different for every consumer, of course. The crux of the matter with such reports is their reliance on info that exists outside the common purview of conventional credit checks, like those conducted using the FICO credit scoring model as their baseline. The aforementioned sources of data can be beneficial to some consumers, and potentially problematic for others.
Those who have not done well in the arena of traditional credit can benefit, especially if they're weighed down by obligations like student loans. People with periods of bad credit-card debt that are in their rearview as far as habits go but still haven't been fully paid off could also be well-served by alternative data collected by the fourth bureau. Other factors, like paying rent and utilities on time, or settling medical bills and other debts in a quick and orderly fashion, can provide proof of good financial sense.
By contrast, if these aspects of financial life are trouble spots for an individual, they can be just as detrimental as it'd be if that person had serious credit card shortfalls or other notable sources of debt. As such, consumers must remain aware of the aspects of credit in which they excel and those where they have trouble, and find the sort of credit reporting that is most pertinent to their situation.