The Top 3 Credit Bureaus

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The Top 3 Credit Bureaus

Credit bureaus are often mentioned. What exactly do they do? What distinguishes them? What’s the deal with three of them? (There are really a lot more, but it’s mostly a trio that influences the majority of consumers’ lives.) Let’s look more closely at these organizations, what they do, and how they do it.

Key Takeaways

  • TransUnion, Equifax, and Experian are the three credit reporting companies.
  • It is typical to have varied credit ratings across all three agencies due to their reporting processes.
  • You should bring all three credit scores to your loan meeting in order to acquire the finest loan conditions possible.
  • Credit rating companies are not the same as credit reporting bureaus. Credit ratings evaluate a company’s or country’s capacity to repay a loan, while credit reporting establishes a person’s credit score.

What Are Credit Bureaus?

Credit bureaus typically collect credit data and credit ratings on individual borrowers for governments and lenders. They are concerned with consumer creditworthiness.

Credit bureaus package and analyze consumer credit records, which are used to calculate credit ratings. Credit scores are provided as three-digit figures ranging from 300 to 850, and they influence the amount of a loan you may qualify for, the interest rate you pay on that loan or on a credit card, and, in certain cases, even your renting and job chances.

Credit bureaus are for-profit businesses that are heavily regulated by the Fair Credit Reporting Act (FCRA).They are constrained in their ability to collect, disperse, and reveal customer information, and have come under heightened scrutiny during the Great Recession of 2007-2009.

The manner in which information is transmitted is an intriguing aspect of the credit bureau business model. Banks, finance firms, shops, and landlords provide free consumer credit information to credit bureaus, who then sell customer information back to them.

The Big Three Credit Bureaus

There are multiple credit bureaus in the United States, but only three are of substantial national significance: Equifax, Experian, and TransUnion. This triumvirate leads the industry for collecting, analyzing, and disseminating information about credit-market users.

There are multiple consumer reporting companies in the United States, but only three are of national significance: Equifax, Experian, and TransUnion. This triumvirate leads the industry for collecting, analyzing, and disseminating information about credit-market users.

Historically, credit ratings have been based on the FICO score linked with the data-analytics corporation formerly known as the Fair Isaac Corporation. While you may still acquire a FICO score from any of the major three, their methods of computation vary, and Experian employs its own FICO score, known as the “Experian/Fair Isaac Risk Model v2.”

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Equifax

Equifax is headquartered in Atlanta and “operates or has investments in 24 countries,” including Argentina, Australia, Brazil, Cambodia, Canada, Chile, Costa Rica, Ecuador, El Salvador, Honduras, India, Malaysia, Mexico, New Zealand, Paraguay, Peru, Portugal, Russia, Saudi Arabia, Singapore, Spain, the United Kingdom, the United States, and Uruguay. It claims to be the market leader in most of the nations where it has a presence, particularly in the United States’ South and Midwest.

Experian

Experian formerly handled reports for the Western United States from its domestic headquarters in Costa Mesa, California. It now bills itself as “the world’s premier provider of information services.” The company employs “about 17,000 employees in 37 countries,” with its corporate headquarters in Dublin, Ireland, and operational offices in Nottingham, United Kingdom, and So Paulo, Brazil.

TransUnion

TransUnion, established in Chicago, bills itself as “a worldwide information and insights firm that makes trust possible.” It employs over 8,000 people and has regional offices in Hong Kong, India, Canada, South Africa, Colombia, the United Kingdom, and Brazil.

Similar Processes, Yet Different

All three credit bureaus collect the same sort of customer information. Personal information such as name, address, Social Security number, and date of birth are included. Credit history also includes debts, payment history, and credit application activity. Credit bureaus routinely gather information from government and private student loans, as well as housing lenders.

If you are 45 days or more behind on your student loan payments, Sallie Mae may report you to a credit agency. Federal loans give you greater freedom, enabling you to wait 90 days before submitting a report.

Overdue income tax is not reported to the bureaus by the Internal Revenue Service (IRS). However, if a person fails to return their tax obligation within a reasonable time frame, or if they owe a large amount of past taxes, the IRS may file a federal tax lien (a legal claim against a taxpayer’s property) with the local county clerk’s office. A tax lien filing is public information, and the bureaus may uncover it via third-party research.

Each credit agency utilizes customer information to create credit reports and credit ratings. The higher the score, the smaller a consumer’s credit risk is regarded to be—and hence the greater their creditworthiness.

Fair Isaac Corporation (FICO) and VantageScore are two of the largest credit scoring model providers. VantageScore is the outcome of a partnership by the three major credit agencies in the United States: Equifax, Experian, and TransUnion. Each credit union has developed its own FICO models tailored to various sorts of lending.

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While FICO 8 is widely utilized by all agencies to measure overall creditworthiness, each bureau has a unique model for various sorts of loans. Experian created FICO 2, Equifax utilizes FICO 5, and TransUnion has their own version in FICO 4.

Why Credit Scores Differ

Assume you apply to a lender for a loan, line of credit, or credit card. That lender almost probably does a credit check on you, obtaining a report from at least one of the three main credit agencies. However, it is not required to employ all three. One credit score or reporting method may be more important to the lender than the other two. All credit queries are recorded on your credit report, but only for the agencies whose reports are requested. If a credit query is solely submitted to Experian, Equifax and TransUnion are unaware of it.

Similarly, not all lenders submit credit activity to each credit agency, so one company’s credit report may vary from another’s. Because each bureau generates data at various periods of the month, lenders that report to all three agencies may have their data show on credit reports at different times.

Generally, delinquency does not influence your credit score until at least 45 days have gone.

To establish an applicant’s creditworthiness, most lenders look at just one report from a single credit agency. A mortgage corporation is a notable exception. Because such significant sums of money are involved, a mortgage lender reviews records from all three credit agencies. It often bases permission or refusal on the middle score.

The rating methods of the agencies are not fixed in stone. Each of the techniques (including FICO) has evolved over time as part of continuing attempts to enhance accuracy. Your credit score may fluctuate over time with the same agency even though your debt history hasn’t, simply because the scoring process has been changed.

Do You Need All Three Scores?

Yes. Credit information is often not recorded with the same accuracy across all three credit agencies, so customers should double-check each report and score. Consumers are entitled to a free copy of their credit report from each credit reporting agency once a year under the 2003 Fair and Accurate Credit Transactions Act (FACTA), an update to the previously stated FCRA.

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Due to the fact that certain creditors and collectors only report to one or two agencies, some things are challenged on one report but confirmed on another. Items are also eliminated from one or two reports for a variety of reasons. This fluctuation often results in a significant credit score disparity across bureaus. When a credit score is requested, it is computed using the information in the credit report. As a result, a person may have a good credit score based on one report but a bad credit score based on another.

If a customer is refused credit because of one terrible credit score but has a higher credit score with another agency, they may be able to contact the creditor and request that the better score be considered, particularly if the initial credit score is so low for a justifiable reason.

Credit Rating Agencies vs. Credit Bureaus

Credit bureaus and credit rating organizations are sometimes confused, particularly as credit bureaus are also known as credit reporting agencies. Credit rating organizations, on the other hand, work with businesses and corporations rather than people. They developed from the necessity for investors to analyze the risk-reward potential of various assets, as well as to get insight into the financial soundness of corporations seeking to borrow money via the issuance of bonds or preferred stocks.

Fitch Ratings, Moody’s, and S&P Global are the three main credit rating agencies. These organizations investigate and evaluate a company’s financials before assigning it a corporate credit rating. These ratings, unlike credit reports or credit scores, are meant to offer investors with information about corporations and debt-based investment issuers. The agencies also assess the financial stability of the firms’ specific debt obligations and fixed-income instruments, as well as insurance companies.

Credit ratings are assigned in letters, such as AAA or CCC, so that investors may immediately assess the risk of a financial instrument. Because the ratings fluctuate amongst the three main agencies, it is critical to determine which one is supplying the letters. Credit ratings are dependent on a large variety of criteria, some of which are market-based, historically calculated, and firm-level. Assessments span from company features to underlying assets, and all are aimed to provide a picture of a borrower’s probability of repayment.

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