The industry will grow as lending standards soften and the economy rebounds
Los Angeles, CA (PRWEB) April 15, 2012
The US Credit Bureaus and Credit Rating Agencies industry manages information for hundreds of millions of consumers and businesses. The industry is responsible for mitigating risk, regulating activity and standardizing information for clients, including investors, credit issuers, investment banks, broker-dealers, governments and consumers. The industry is categorized into two groups: credit bureaus and credit rating agencies (CRAs). Credit bureaus help lenders assess the creditworthiness of prospective customers by collecting information on consumer borrowing and repayment histories. In contrast, CRAs are in the business of evaluating risk and assigning ratings to various credit issuers and debt instruments.
Before the subprime crisis, revenue for the Credit Bureaus and Rating Agencies industry surged due to weak lending standards and low interest rates. During this period, consumers funded spending through credit card debt, mortgage financing and home equity loans. Industry growth reversed quickly in late 2007, when the subprime mortgage crisis erupted. As credit markets froze, lending standards increased and the United States spiraled into a recession. In turn, the demand for credit rating services declined as investors lost their appetite for debt instruments. According to IBISWorld industry analyst Eben Jose, the demand for consumer credit reports also faltered because higher lending standards decimated the volume of credit applications. In 2010, this trend began to reverse as lending standards softened and the economy returned to growth. Growth accelerated in 2011, with industry revenue growing 8.3%. Revenue is expected to continue growing at a high rate, increasing an estimated 13.4% to $10.5 billion in 2012. As a result, industry revenue is expected to increase at an average annual rate of 3.0% in the five years to 2012.
The US Credit Bureaus and Rating Agencies industry is moderately concentrated. The top players include Experian Group, Equifax Inc., Moody’s Corporation, The McGraw-Hill Companies Inc. and Trans union LLC. Credit bureaus and CRAs benefit from economies of scale and high barriers to entry. Larger CRAs also tend to have strong brand recognition, which is important in a reputation-based industry. Credit bureaus also benefit from government regulations, such as the FACT Act, which allows consumers to request and obtain a free credit report once every twelve months from each of the three nationwide consumer credit reporting companies (i.e. Experian, Equifax and TransUnion). This arrangement has supported growth because companies are allowed to offer additional products and services to individuals who request free credit reports. Industry growth is expected to pick up speed over the next five years as the economic recovery turns the corner. The financial sector is expected to stabilize, and banks are expected to lower their lending standards, says Jose. The national unemployment rate is also projected to decrease. As a result, businesses and consumers will increase lending activity, which will increase demand for credit reports and rating services. In the five years to 2017, industry revenue is projected to increase. Profit margins are also expected to increase over the period due to the development of new technology and automation of services, which will improve productivity and increase product offerings. For more information, visit IBISWorld’s Credit Bureaus and Rating Agencies report in the US industry page.
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IBISWorld industry Report Key Topics
This industry comprises firms that provide information, opinions and ratings on the creditworthiness of particular companies, individuals, securities or financial obligations. The industry can be divided into two primary groups: credit bureaus and credit rating agencies (CRAs). Credit bureaus provide services related to consumer information, while CRAs generally focus on businesses, governments, securities and the financial markets.
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