In the world of finance, credit scores are one of the most important aspects that determine eligibility for loans, credit cards, and even apartments. Credit reporting agencies, also known as credit bureaus, are responsible for creating credit reports and scores for individual consumers based on their credit history. Understanding your credit score and report can help you make informed financial decisions and improve overall creditworthiness. In this article, we explain what credit reporting agencies do, what information they collect, and how to find out your credit score. There are several credit reporting agencies, even outside the primary three, so continue reading online to learn which one is best suited for you.
What is a Credit Reporting Agency?
Credit bureaus (or credit reporting agencies) are companies that gather credit histories of individual consumers primarily to assess their creditworthiness for potential lenders. According to Investopedia, the comprehensive credit reports they create are also the source of information for credit scores. Credit scores are three-digit numbers, usually ranging from 300 to 850, that determine eligibility for a loan or credit card, notes the source. They can also influence the lender’s decision on loan size and interest rate.
Credit bureaus are private companies regulated by the federal Fair Credit Reporting Act (FCRA) regarding the collection, distribution, and disclosure of consumer information. The credit bureau’s business model relies on information given by banks, finance companies, retailers, and occasionally landlords. The credit bureau compiles and analyzes that data and then sells it to lenders and other interested parties, explains Investopedia.
3 Main Credit Bureaus
Credit reporting has been in existence for over a century, and in the past, most communities had a local credit agency, explains TransUnion. Lenders would contact the nearest credit agency when they required a credit report. As credit reporting became automated, the local credit agencies were merged into the three major regional firms. TransUnion catered to the Central United States, Experian served the West, and Equifax managed the South and East. Today, each credit agency has a national presence, adds the source.
Here are the three main credit bureaus, along with a brief description of each as described by WalletHub.
- Equifax: Equifax specializes in the business-to-business sector, providing financial institutions, government agencies, insurance providers, and retail companies with consumers’ credit and insurance information. However, Equifax has also been offering credit reports, credit scores, and credit monitoring services to the general public since 1999.
TransUnion: Established in 1968 as the holding company for Union Tank Car Company, it later ventured into the credit-reporting field after acquiring the Credit Bureau of Cook County. Today, they reportedly cover over 500 million people globally. TransUnion provides data-tracking and analytics services to various enterprises and also offers credit reports, scores, and monitoring services to consumers.
Experian: Began when British retailer GUS acquired TRW Information Services, the largest credit bureau in the U.S. at the time. Since then, Experian has expanded its reach worldwide, with over 6,000 employees in North America alone. They focus on credit, marketing, consumer services, and analytics. Experian tracks data on consumers, businesses, insurance, motor vehicles, and certain lifestyle characteristics.
Differences Between Each Bureau
Many people tend to group TransUnion, Equifax, and Experian together, but these credit bureaus are independent and separate companies. Although they gather comparable data, how they collect and organize this information differs, explains Credit.com. Lenders may rely on one or all three bureaus’ reports when evaluating loan applications. However, Investopedia notes there is no single “best” credit bureau among the three main ones.
As for accuracy, each credit bureau may collect slightly different information based on which creditors report transactions to them. This means that inaccuracies or incomplete data may appear on one, two, or all three of credit reports. For instance, Credit.com notes that Experian includes rental payments, while TransUnion and Equifax do not. Additionally, TransUnion generally provides more employment data than the other two bureaus.
Although this does not affect credit score, it can help lenders verify your work history. Since each agency is a distinct entity, they do not exchange information with one another. Instead, they collect data from their own sources, primarily creditors. Therefore, Investopedia recommends everyone review their credit reports, particularly if they plan to apply for significant loans. Everyone is entitled to one free credit report each year.
What Information Do They Maintain and Where Do They Get It?
Credit bureaus maintain consumer credit account information including personal details such as name, address, and Social Security number, explains Credit.com. They also keep records of credit tradelines, which includes credit cards, bank accounts, mortgages, and other types of credit. While each bureau may have a slightly different report layout, the source states that they all record the same types of tradeline data. This includes the lender’s name, account number, credit limit, and payment history.
Credit reports also contain information about collections accounts, bankruptcies, and hard inquiries. According to Credit.com, these occur when a lender checks your credit report. This may happen as part of a loan or credit evaluation process. Lenders and collection agencies provide this information to credit bureaus, but not all organizations are required to report it. As a result, the source warns that the information on your report may vary between bureaus.
How Do I Find Out My Credit Score?
The FCRA grants individuals the right to obtain a complimentary credit report annually from each of the three primary credit bureaus. Federal law authorizes annualcreditreport.com as the official website to access these reports for free. Apart from the annual credit report, CNBC states that some resources such as Experian may offer an updated credit report every month. While Experian reports are free, the source warns there is a paid subscription fee to view TransUnion and Equifax reports.
CNBC lists the following as resources that offer free monthly credit score checks — Experian Boost™, CreditWise from Capital One, and Discover Credit Scorecard.