If you’ve spent any time looking at your credit history, you’ve probably realized that there are three different credit bureaus (also referred to as credit reporting agencies): Equifax, Experian, and TransUnion.
You might also know that the information contained in your credit report from each of the three credit bureaus has a strong influence on what type of credit you have access to.
The credit bureaus are basically the gatekeepers to better credit offers, from getting approved for a new credit card to getting the lowest interest rates on a loan. But why are there three different credit bureaus, and why exactly do they matter? What is the difference between them?
Read on to unravel the mystery surrounding these important institutions.
What is a credit bureau?
It might surprise you to learn that none of the three credit reporting agencies are federal agencies. In fact, they have no government affiliation whatsoever.
They’re actually private companies that collect information from creditors on consumer payment history and behavior. Contributors include banks, credit card companies, lenders, healthcare providers, cell phone carriers, and utility companies.
What do credit bureaus do?
Each credit bureau lists and analyzes the information on your credit report, which can then be sold to creditors when you apply for a loan or a credit card, as long as they have your permission.
Who accesses your credit report?
Some landlords or potential employers may also request this information to help evaluate consumer creditworthiness.
For lenders and credit card companies, the information is used first to determine whether or not you’re approved for the loan or card.
They can tell if you miss payments frequently or if you have ever defaulted on a loan. All of these send warning signals that you might not be willing or able to repay any credit you take out with them.
Landlords can use the information on your credit report to gauge whether or not you’re likely to pay your rent on time each month. If you don’t pay your other bills on time, why should they think you’d pay your rent on time?
Employers also sometimes use your credit report to decide if you can be trusted handling money or even just how responsible you are in financial areas of your life.
No matter who wants to access your information from a credit bureau, they need your permission to do so. Don’t worry too much about privacy concerns because you’ll need to provide your signature for anyone to access your credit report.
How did Equifax, Experian, and TransUnion get started?
Lending used to be a community-based endeavor. You would go to your local bank for a loan, and they’d be able to ask around at local stores about what you owe or how quickly you pay your debts.
But as the population grew, people started to move more frequently, and larger financial institutions began to take over.
This made it increasingly difficult for banks to track the payment history of loan applicants. Eventually, various retailers and financial groups began putting together a list of customers who had either good or bad credit.
If you didn’t pay your bills, you were essentially blacklisted. They sold these lists to other creditors to help screen applicants. Over time, it resulted in three different for-profit corporations: Experian, Equifax, and TransUnion — what we know today as the three major credit bureaus.
Other Consumer Reporting Agencies
While these are the most commonly used, there are many other consumer reporting agencies in existence. Most, however, don’t focus on the broader picture of personal credit. Instead, they concentrate on specific types of financial information.
Some credit bureaus track your checking and banking history. Others offer employment, utility history, tenant and rental, and other types of background screening.
How do the credit reporting agencies differ?
Each credit bureau is a separate company operated in different ways, including the detail they provide on certain types of information.
Equifax and Experian, for example, only note your employer’s name as part of your employment history. On the other hand, TransUnion lists out more specific information, such as your title and the dates you were employed there.
The information reported also varies from bureau to bureau. That’s because no creditor is required to send your payment history to any of the credit reporting agencies. It’s a completely voluntary process.
Think back to the origins of the credit reporting agencies — they were created to help lenders and creditors decide which potential customers were creditworthy. So while it is voluntary, it’s in everyone’s best interest to report at least some sort of information on individuals’ credit history.
Some Creditors Do Not Report to All Three Credit Bureaus
Creditors and other data providers don’t necessarily take the time to report to all three bureaus. As a result, you’ll notice these differences when comparing your three credit reports.
Missing information on one or more credit reports isn’t a cause for concern, but inaccurate information is. That’s what you want to keep an eye out for when you review your credit report each year. Save your disputes for important information that affects the accuracy of your credit report.
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Why are credit scores from each credit bureau different?
Since the information listed on each credit report varies slightly, you’ll also have a different credit score from each credit bureau.
Not only is the data different, but the credit scoring models also differ depending on which credit reporting agency lenders request your credit score from. When a lender asks each credit reporting agency to send them your credit score, they have several options.
Experian Credit Scores
Experian uses the FICO 8 Score if you decide to purchase your credit score from them for your personal use. However, lenders and creditors may also request different versions of the FICO score or a VantageScore.
Each one analyzes the same payment history, but various algorithms give different weight to relevant data points.
TransUnion Credit Scores
TransUnion offers both FICO scores and VantageScores for creditors and lenders but also provides companies specific products that focus on various standards depending on what type of information the company is looking for.
Equifax Credit Scores
Finally, Equifax offers both FICO scores and VantageScores to lenders pulling credit scores on potential customers. Still, it uses the Equifax Credit Score Model when you purchase your credit score from their website.
While the credit score range is the same as FICO’s (300-850), it’s not the same thing. But, it can be difficult to truly “know” your credit score because it’s a pretty subjective number.
FICO Credit Scores
On top of the major consumer credit bureaus credit scores, we have FICO scores. FICO is derived from the name of its founder, the Fair Isaac Corporation. The FICO credit scoring model and scores are what most lenders in America use today to determine a consumer’s creditworthiness.
How do lenders interpret all of these different types of credit scores? Typically what happens is that they’ll pull all three credit reports and credit scores. From there, they’ll use your middle FICO score to determine your credit offer.
If you’re applying for a loan with someone else, such as a mortgage with your spouse, then the lender uses the lower of the two middle credit scores. So if your middle credit score is 780, but your spouses’ is 680, that’s the number they’ll go with.
How to Access Each Credit Report
When you’re ready to take a look at your credit history, you need to grab copies of your annual credit reports. AnnualCreditReport.com is the only website authorized by the Fair Credit Reporting Act (FCRA) where you can access your free credit reports every 12 months.
When you get to the website, click on the “Request your free credit reports” button. Next, you’ll have to fill in your personal information plus your social security number.
Then, you’ll be asked a series of security questions to confirm your identity. It might be helpful to have access to your different bank accounts at this time because the questions can be fairly specific about deposits, loan amounts, account opening dates, and more.
You can select which credit reports you want to retrieve when going through this process. You don’t have to get all three at once. For example, if it’s your first time checking your credit, you might want to look through each credit report from Equifax, Experian, and TransUnion to compare entries and check for accuracy.
Applying for a Loan
If you plan on applying for a loan sometime in the next year, you might want to just check one credit report now to see if you have any red flags. For example, if you find credit accounts that don’t belong to you, it could signify that you have been a victim of identity theft.
Then, after working on rebuilding your credit for several months, you can access a credit report from another bureau to see if any items have been changed.
Credit Monitoring and Identity Theft Protection
Consider a credit monitoring service if you would like to have monthly access to your credit reports and credit scores to see what has changed and protect against identity theft. Experian, Equifax, and TransUnion each offer credit monitoring services. There are also third-party credit monitoring services, such as MyFICO, Identity Guard, and LifeLock.
Just remember that none of your free credit reports include your credit score. You’ll have to purchase your credit score separately, or you can get it free from one of the credit cards that give free FICO scores.
When to Pay for Your Credit Reports
If you’re on a tight deadline for applying for a loan or credit card and think you might have negative items to dispute, it could be worth paying for your credit reports.
When you pay, the credit bureaus have just 30 days to respond to a dispute, but they have 45 days to respond if you access your annual credit report from AnnualCreditReport.com. So it just depends on you and your timeline.
While it might seem confusing to have three separate credit reports, it can actually be a good thing. This is because they each use a slightly different method of collecting, reporting, and analyzing your credit history.
This ensures a holistic, balanced view of your credit history, especially when it comes time to apply for a loan or credit card. It’s worth the bit of extra time and effort to actively understand each of your three credit reports and how they differ, so you know exactly what lenders see.