Credit bureaus, also known as credit information agencies, play an important role in today’s world. Their main function is to help lenders make objective and accurate decisions about potential clients.
To this end, these independent commercial companies collect people’s credit and debt activity and then create reports that can be accessed by financial institutions and other businesses. Because credit reports change as data is updated, companies gain valuable insight into an individual’s financial background and changing account management habits.
This is how credit bureaus work, both for you and for the companies that depend on them.
What is a credit bureau?
Credit bureaus are agencies that collect data about borrowers’ credit history and use that information to create credit reports and credit scores. Lenders and lenders buy this information to help them evaluate their clients’ creditworthiness and make their loan approval decisions.
The most popular and well-known product offered by the credit bureau is the consumer credit report, which is a report on how a consumer manages their credit accounts and financial obligations. Credit reporting bureaus are required by law, the Fair Credit Reporting Act (FCRA), to ensure that the information in their reports is accurate and timely.
Credit bureaus use credit scoring algorithms that incorporate data from your credit report to form your credit score. These scores are three digit numbers between 300 and 850 and affect whether you are approved for loan products and the interest rate and terms you receive.
Credit bureaus are private companies that are strictly regulated by the federal government. The FCRA mandates a range of consumer protection measures and limits the ability of these agencies to collect, share, and share consumer information.
Top 3 credit bureaus
Although there are several credit bureaus in the United States, the big three are Equifax, Experian and TransUnion. While each bureau does essentially the same thing, they compete with each other and thus have their own set of unique products and services.
Equifax
Equifax is based in Atlanta and operates in 25 countries through the efforts of 13,000 employees. In addition to providing credit reports, the company also offers credit monitoring and identity protection services.
In 2017, Equifax’s data systems were hacked, resulting in the compromise of the personal information of 147 million customers. In response, Equifax offers a search tool to check if your information has been compromised. If so, you may be eligible for free credit monitoring services or cash payments up to $125.
Experian
Experian has 20,000 employees in 44 countries and is headquartered in Dublin, Ireland with operational headquarters in Nottingham, England and São Paulo, Brazil. The company’s headquarters is located in Costa Mesa, California.
The company offers free credit reports and credit scores, while Experian Boost gives you the ability to “immediately boost your FICO® score” by including your utilities, streaming services, and phone providers in your credit score calculations. While results are not guaranteed, Experian claims that average users who get promoted improved their FICO Score 8 based on Experian data by 13 points.
TransUnion
TransUnion is headquartered in Chicago and has regional headquarters in Hong Kong, India, Canada, South Africa, Columbia, England and Brazil. In total, the company employs 10,000 people.
In addition to free annual credit reports and fraud alerts, TransUnion offers premium paid services, including credit monitoring, credit protection, and a credit score simulator.
Why Credit Scores Vary Between Bureaus
Although credit reports and credit scores are often referred to as synonyms, they are separate products. A credit report is a written document that details your credit history, while a credit score is a numeric expression of the relevant data from the report.
Credit assessors take the information that appears on a credit report and feed it into their own mathematical models, turning it into a numerical score that helps a lender predict credit risk. Your scores will change as your credit history is updated. Please note that your credit information may not be shared with all three credit reference agencies.
Because data is provided by creditors, collection agencies, and court records, each bureau may have different information. Lenders also release credit information at different times, which often results in one agency having more up-to-date information than another.
Also, while most creditors provide information to all three major bureaus, third-party collection agencies are often the exception.
“Collectors often prefer to report to one bureau rather than another,” says Yosef Brailofsky, founding partner of Goldminecredit.com, a credit education company. “So you should get reports from all three to know for sure.
The two most common credit scoring companies are Fair Isaac Corporation (FICO Score) and VantageScore. Estimates range from 300 to 850. Although both scorers use the same data, their calculation methods differ.
FICO scores weight the following as most important to least important, expressed as a percentage:
- payment history: 35%
- Credit use: thirty%
- Length of credit history: fifteen%
- Credit mix: ten%
- New loan: ten%
VantageScores is based on what he considers the most and least influential:
- payment history: extremely influential
- Age and type of loan: very influential
- Percentage of used credit limit: very influential
- Total balances and liabilities: moderately influential
- Recent credit behavior and inquiries: less influential
- Available credit: less influential
This is why, depending on the bureau and credit scoring company you use, your credit information may vary. However, if your credit report shows a number of well-managed accounts that you have managed for many years, a low debt-to-credit limit ratio, no bankruptcies, and few complex inquiries, your credit report will not only be attractive, but you will also have high scores. .
Do you need credit scores from all three bureaus?
Because lenders and lenders choose which credit bureau they get your credit information from, it’s a good idea to check your credit report and credit ratings with all three agencies regularly. This will ensure that the information you report to the agencies is accurate and up-to-date and that your credit scores correctly reflect your creditworthiness based on the information in each agency’s credit report.
You can access your credit history for free. Many credit card or auto loan companies now provide their customers with credit scores in their monthly reports or on their online account dashboard. However, credit rating companies usually only show the rating of one credit bureau, not all three. If you need all three points, you may need to pay for a service such as MyFICO or purchase access from each bureau separately.
By law, you can receive free copies of your credit report from each agency every 12 months. You can access your credit reports for free at AnnualCreditReport.com. What’s more, due to the pandemic, consumers can get free credit reports every week until the end of 2022.
bottom line
The three major credit bureaus play an important role in lenders’ decisions when it comes to approving credit cards, loans, and other loan products. Thus, the information they collect and share with creditors can directly affect your financial situation.
But as we have seen, credit reports and scores can vary from bureau to bureau. That’s why it’s a good idea to check your credit reports and credit scores before you apply for a loan – you can identify and resolve any issues early and you’ll have a clearer view of your credit.
Editorial disclaimer
The editorial content on this page is based solely on the objective judgment of our contributors and is not based on advertising. It was not provided or ordered by credit card issuers. However, we may receive compensation when you click on links to our partners’ products.