If you’ve ever applied for a loan — whether it be for a car, a house, or even a small business — then I’m sure you’re well acquainted with the importance of credit scores. But what about credit reports?
Credit reports tell lenders about your credit history and indicate how reliable you are as a borrower. But more than that, credit reports help you understand your credit, improve your credit score, and prevent fraud and identity theft. So how do you get your credit report? That’s where credit bureaus like Equifax, Experian, and TransUnion come in.
In this post, we’ll cover everything you need to know about credit bureaus. Then we’ll break down the “big three” credit bureaus so you can confidently understand your credit report and score.
What Is A Credit Bureau?
Let’s start with the basics.
A credit bureau is a business organization that collects and sells data regarding the credit history of individuals.Â They typically collect data such as your credit card and loan balances, the number of credit accounts you have, your payment history, any bankruptcies, etc. Today, there are dozens of credit bureaus, but the “big three” are Equifax, Experian, and TransUnion.
Credit bureaus arose to help lenders quickly gaugeÂ the reliability of a potential borrower. In the past, you could go to the goodÂ ol’ general store and the owner would know you, your character, and whether or not putting your items on “charge” (or on credit) was a good idea. That methodÂ may have worked in the past, when communities were small and isolated, but there had to be a better way moving forward. Thus credit bureaus were born.
Credit bureaus collect data on potential borrowers and sell it to banks to help them make informedÂ lending decisions. The oldest of the “big three,” Equifax, started capitalizing on this need all the way back in 1899.
Today, the credit bureaus have streamlined and computerized the whole process by compiling the data they collect into a credit report and credit score. While every credit bureau calculates credit scores differently, and every lender has different credit score requirements, credit reports and credits scores allow for a more universal measuring stick to judge potential borrowers by. Recently, credit bureaus also have branched out to providing dozens of additional products to help individuals and businesses alike, including identity protection, business marketing, and more.
How Do Credit Bureaus Collect My Information?
Okay, we admit it all sounds a bit creepy. Big Brother’s always watching, right? Well, yes, but it might comfort you to knowÂ how credit bureaus collect and share your information.
Credit bureaus mainly collect information from credit institutions with which youÂ already have a relationship, such as:
- Credit card companies
- Student loan providers
- Auto loan providers
Credit bureaus do not have access to these accounts; instead, the credit institutions share the information with the credit bureaus. Credit institutions are not obligated to share information and can give data to one, two, three, or none of the major credit bureaus.Â Typically, credit bureaus store data on your balances, available credit, payment history, and the number of open and closed accounts you have. Collection agencies and debt collectors may also report to the credit bureaus if you have any delinquent activity.
The rest of the information credit bureaus collect comes from public court records. They access these records in search of any possible bankruptcies, tax liens, repossessions, and foreclosures.
How Do Credit Bureaus Use My Information?
Now that you know how credit bureaus collect your information, you’re probably wondering how they use your information?
Credit bureaus use your information to create credit reports and credit scores. They then share your information with potential lenders, landlords, and employers for a number of reasons. Your credit report may be pulled up in the following scenarios:
- When a lender is checking your credit to see if you qualify for a loan
- When a landlord is deciding whether or not to accept your rental application
- When a new employer needs to run a background check
- When a utility provider is about to start a service contract with you
Credit bureaus also sell information for marketing purposes. Say a lender is looking forÂ potential customers with poor credit who might need a credit card. The lender will reach out to a credit bureau, which will then sell the lender a prescreening list of qualifying individuals and their basic contact information. (If you’ve ever wondered how you end up with so many preapproved credit cards flooding your mailbox, this is it.)
However, there are rules that protect you and your data — particularly the Fair Credit Reporting Act (FCRA).
The FCRA is a law that states you have the right to know your credit report and the right to dispute any errors on your credit report. It also lays out what is a “permissible purpose” for a lender to pull your credit and what is an “impermissible purpose.”
If a potential lender, landlord, utility provider, future employer, insurer — you name it — wants to view your full credit report, they must have a permissible purpose and your permission first. In some cases, a potential lender will simply let you know that they will do a credit pull, and by following through with the application, you grant them permission to do so. In other cases, a landlord might have you use a tenant screening service like ExperianConnect, where you have to download your credit report and share it with them directly.
If you aren’t comfortable with credit bureaus prescreening your information and sending it to third-party lenders, you can use OptOutPrescreen.com to prevent this.Â Continue onto the “What To To Do In Case of Fraud Or Identity Theft” section to learn more ways to protect your credit report and personal information.
Credit Reports VS Credit Scores
Since credit bureaus use your credit history to compile both a credit report and a credit score, it’s important to know the difference between the two.
On a credit report, you’ll see detailed information about your credit history. A typical credit report will give you a full breakdown of all your open or closed credit accounts, bank accounts, loans, and payment history. Below, you’ll se an example of a credit report and what it might include (this is only page 1 of 4, so you can imagine how detailed your full credit report might be):
A credit score, on the other hand, provides much less detail. You’ll usually be given your credit score in tandem with a graphic indicator of whether your credit score is poor, fair, good, or excellent. You may be able to drill down to see the factors that affect your credit score, and you may not. Here’s an example of a credit score and how it might appear:
Think of it like this: a credit report is a detailed report ofÂ what your credit history is, while a credit score is an interpretation ofÂ what your credit history means. Your credit score is one of the biggest factors lenders use when considering loan applications; the higher the score, the more likely you are to pay your loan back — at least, in a lender’s eyes.
It’s worth noting one more key difference between credit reports and credit scores. Credit bureaus are legally obligated to give you a free credit report once a year, whereas there is no law requiring them to provide a credit score. This means you’ll have to pay a fee to access your credit score through one of the “big three.” There are free credit score sites if you want to avoid this fee. Check out our post The Best Free Credit Score Sites to learn more.
Note: In certain situations — like unemployment, identity theft, and fraud — you can access your credit report multiple times a year without charge.
How Credit Scores Are Calculated
Credit scores are all based on similar data but can vary significantly depending on the credit score model. Credit scores are generally affected by the following:
- Your payment history
- How much credit you use versus how much credit is available in an account
- The number of accounts you have open
- How long your accounts have been open
- TheÂ types of credit you have (such as credit cars, loans, mortgages, etc.)
How this information is transformed into a credit score depends on the credit model being used. There are two main types of credit models: FICO scores and VantageScore.
FICO Scores VS VantageScore
The FICO score model was created by Fair Isaac Corporation in 1989 (hence the name FICO). FICO credit scores range from 350 – 850 and are determined by these five factors, which are ranked in terms of importance by percentage:
- Payment History: 35%
- Amounts Allowed: 30%
- Length Of Credit History: 15%
- New Credit: 10%
- Credit Mix: 10%
The VantageScore model was created by Equifax, Experian, and TransUnion in 2006. This model also uses a 350-850 scale. Scores are determined by the following six factors that are ranked by level of importance rather than a percentage:
- Payment History: Extremely influential
- Percentage Of Credit Limit Used: Highly influential
- Age & Type Of Credit: Highly influential
- Total Balances & Debt: Moderately influential
- Available Credit: Less influential
- Recent Credit Behavior & Inquiries: Less influential
VantageScore claims that it is “the scoring model that is more accurate.” However, the FICO scoring model is used more predominantly in the lending industry.
Why Is My Credit Score Different With Each Bureau?
It makes sense that your credit score may vary depending on whether the potential lender is using the FICO or VantageScore model. But when the “big three” all use the VantageScore model, why do you get a different credit score from each credit bureau?
Remember earlier when we said that credit institutions aren’t required to share information with the credit bureaus? They can choose to share data with one, two, three, or none of the “big three.” This means that Equifax, Experian, and TransUnion don’t have access to exactly the same data, which accounts for the difference in credit scores.
This is why it’s important to treat your credit score as a “guesstimation” rather than an end-all number. Credit scores are ever-changing and lenders all have their own way of calculating and evaluating your credit score. Check your credit score so you have a general idea of what it is, and try to keep your score as close to 850 as possible, but don’t stress over-much about the exact three-digit number.
Reasons To Use A Credit Bureau
Now that you know what credit bureaus are and how they work, when should you use one? It’s simple: use a credit bureau anytime you want to know or need to know your credit report or credit score. Here are five of the most common scenarios for when you should use a credit bureau.
1. When Applying For A Loan
When applying for a loan, a potential lender is going to consider both your credit report and credit score, so it’s extremely important that you know your credit report and score beforehand. This way, you can correct any errors on your credit report and make sure you meet the lender’s minimum borrower requirementsÂ before you apply.
If there are errors, they can take a while to set right. Additionally, if you don’t meet the credit score requirement, raising your credit score can take time. Knowing the state of your credit before applying gives you the time to put your best foot forward and significantly increases your chances of being approved for a loan.
For more tips and tricks about increasing your chances of securing the loan you want, read our post on improving your loan application.
2. Before Renting An Apartment Or House
Potential landlords almost always run a credit report in order to decide if you’re trustworthy enough to make your monthly payments on time. Knowing your credit report beforehand is key. Again, if there are any errors, you can correct themÂ before your future apartment or house is on the line. Or, if there is a missed payment or some other potential red flag on your credit report, you can try to explain the situation to your landlord in advance rather than being flat-out rejected.
3. To Improve Your Credit Score
If you are wanting to monitor and improve your credit score, you need to know your score first. Each of the “big three” allows you to purchase your credit score. They also offer credit monitoring subscriptions that allow you to regularly view your credit score and receive alerts when there are any changes to your credit score.
If you don’t want to pay for a monthly credit monitoring service, check out the best free credit score sites.
4. To Doublecheck For Credit Errors
As we mentioned earlier, you don’t want to be stuck with an error on your credit report right when you’re in the middle of the application approval process for a new loan or mortgage. Check each of the big three credit bureaus for errors as they all collect and maintain different information.
5. To Prevent Fraud & Identity Theft
Another benefit of using a credit bureau is fraud prevention and identity protection. If you stay on top of your credit report, you can pinpoint anything fishy and secure your information. When it comes to fraud and identity theft, the sooner you notice a problem, the better. One of the best parts about using one of the “big three” credit bureaus is that they all offer some form of fraud monitoring and extra security measures (which we will cover in more detail).
Bonus: To Help Run Your Business
As an added bonus, Equifax, Experian, and TransUnion all offer additional business services to help business owners manage, expand, and secure their small businesses. These services include everything from analytics to customer acquisition to risk management to fraud prevention and more.
What To Do If There’s An Error On Your Credit Report
If you find an error on your credit report, you’ll need to report and dispute that errorÂ withÂ each individual bureauÂ since each bureau collects and utilizes different information. Each bureau has their own process for disputing. You’ll need to go to their individual sites to find details on how to fix an error on your credit report.
One of the reasons it’s so important to check your credit report regularly is that it can often take months to properly fix an error on your credit report. For more details on common credit report mistakes and how to dispute creditÂ report errors, visit theÂ FICO website.
What To Do In Case Of Fraud Or Identity Theft
When it comes to fraud and identity theft, you don’t want to take any chances. If you suspect fraud related to any of your credit cards, bank accounts, or identity — or if your identity has been stolen — it’s important to take action right away. You can do so by submitting a fraud alert or security freeze (sometimes known as a credit freeze).
Both a fraud alert and security freeze are steps to secure your credit report and personal information, but they differ slightly.
Fraud alerts usually last 90 days (unless you’re an identity theft victim, in which case you can extend the alert). To place a fraud alert, contact Equifax, Experian, or TransUnion and follow their instructions. You only need to contactÂ one of the big three credit bureaus to place a fraud alert as they will notify the other two credit bureaus.
A credit freeze has the advantage of being much more secure. However, you will have to lower the freeze each you time you or a lender need to view your credit report, and you may be required to pay for the service. Unlike a fraud alert, you will have to place a security freeze with each of the three bureaus.
How Do The Big Three Credit Bureaus Compare
Now that you know the basics about credit bureaus and the reasons to use one, how do you know which credit bureau to use? How do the big three compare to each other? And what products do each credit bureau offer? Here’s a basic breakdown that compares Equifax, Experian, and TransUnion. Read on to learn more about each credit bureau.
Individuals looking to check their Equifax credit report and score and in need of a free credit lock service.
The oldest of the three credit bureaus, Equifax has been around since 1899. While the company has grown significantly over the years, the Equifax motto to “always focus on its customers” has stayed the same. Today, Equifax offers basic credit report and credit score services as well as several business products. The most notable aspect of Equifax is its free credit lock service that allows individuals to protect their data at no additional cost.
Equifax offers basic credit report and credit score services, as well as a free credit lock service.
- Credit Report: As with every credit bureau, you can access your free Equifax credit report at annualcreditreport.com.
- Equifax Credit Score: You can purchase an Equifax credit score for $15.95. This score will be accessible for 30 days.
- Lock & Alert: This free service allows individuals control over their credit report by locking and unlocking the report as needed. They even have a mobile app and send alerts every time your account is unlocked or locked.
You can purchase a single business credit report from Equifax for $99 or a multi-pack for $399.95. You can use this to view your own business credit or to ascertain the credit health of a potential business partner, supplier, or new customer.
In addition to business credit reports, Equifax offers 11 products to help you run your small business. These products range from customer acquisition to risk mitigation to credit monitoring to fraud prevention and more. Visit the Equifax website to learn more about their business offerings.
Individuals looking to view their Experian credit report or to actively monitor their credit report and credit score from all three credit bureaus.
Equifax began as part of TRW Information Systems and Services INC. back in 1968, and has since had a long history of acquisitions and advancement. Of all three bureaus, Experian offers the most personal products for monitoring and protecting your credit. What really sets Experian apart is that you can monitor your credit report from each of the three bureaus, so you can have all your credit information in one place. Experian also offers a FICO score simulator, which is invaluable for seeing what your FICO score could be if you make changes to your credit.
Experian offers personal credit monitoring and identity protection products as well as loan matching and credit card matching services.
- Credit Report:Â As with every credit bureau, you can access your free Experian credit report at annualcreditreport.com.
- Experian Credit Report & Score:Â You can purchase your Experian credit report and FICO credit score for $19.99. This purchase is only good for a one-time view.
- 3 Bureau Credit Report & FICO Score:Â For $39.99, you can view your Experian, Equifax, and TransUnion credit report as well as your FICO credit score. This purchase is only good for a one-time view.
- Experian CreditWorks Basic:Â View your Experian credit report for free every month.
- Experian CreditWorks Premium: For $24.99/month, you can view your FICO score and gain access to Experian’s credit monitoring, identity protection, and credit lock services. This service includes the 3 Bureaus Credit Report. This product lets you view your credit reports and credit score daily, and it includes a FICO score simulator as well.
- Experian IdentityWorks Plus: Experian’s identity protection service starts at $9.99/month and includes dark web surveillance, identity theft insurance up to $500,000, lost wallet assistance, credit lock, and identity theft monitoring and alerts. Includes credit monitoring for Experian and FICO score alerts. You can add child identity protection as well.
- Experian IdentityWorks Premium:Â Experian’s most expensive identity protection service is $19.99/month and includes dark web surveillance, identity theft insurance up to $1,00,000, lost wallet assistance, credit lock, and identity theft monitoring and alerts. Includes credit monitoring for all three credit bureaus and FICO score alerts.Â You can add child identity protection as well.
Note: For Experian CreditWorks and IdentityWorks products, you can receive a discount for purchasing an annual subscription rather than a monthly subscription.
Experian does offer business credit scores, although they aren’t forthcoming about the cost. The credit bureau also offers Experian Connect (a tenant screening service) and Experian Mailing List Builder (a customer acquisition service).
In addition, Experian offers 11 other business services ranging from customer management to risk management to debt recovery to consulting services and more. Visit the Experian website to learn more about their business offerings.
Individuals looking to check their TransUnion credit report and score and to manage their business and its credit.
TransUnion started back in 1968 as a holding company for a railroad leasing organization known as Union Tank Car Company. Today, TransUnion is the smallest of the three credit bureaus but packs the biggest punch where business services are concerned. TransUnion also offers a credit score simulator — it is a great tool for improving your credit score as you can see how your credit could be affected if you made certain changes to your credit.
TransUnion offers basic credit report and credit score products, as well as a free credit monitoring and identity theft service.
- Credit Report:Â As with every credit bureau, you can access your free TransUnion credit report at annualcreditreport.com.
- TrueIdentity:Â This is TransUnion’s free credit monitoring and identity theft protection service. It includes unlimitedTransUnion credit reports, a credit lock service, and alerts.
- Credit Monitoring: For $19.99/month, you can have access to unlimited TransUnion credit report and score views, as well as credit lock, credit change alerts, and a score trending and score simulator tool.
TransUnion offers business credit scores, although they aren’t forthcoming about the cost. The credit bureau also offers SmartMove, a tenant screening service.
In addition, TransUnion offers business products covering 14 fields, including marketing, fraud detection, healthcare revenue protection, customer acquisition, and more. Visit the TransUnion website to learn more about their business offerings.
Which Credit Bureau Should I Use?
Now that you know a little more about each of the three credit bureaus, the question becomes:Â Which credit bureau should I use?
The answer is all three of them.
We promise this isn’t a trick answer. Since each credit bureau collects different data regarding your credit history, it’s incredibly important to check your credit report with Equifax, Experian, and TransUnion. Luckily, you are legally guaranteed a free annual credit report from each bureau.
One recommendation is to stagger your annual free credit report. Check your Equifax report, then your Experian report four months later, and then your TransUnion report after another four months. This way you can always have a rough idea of what your credit report looks like without losing a penny. Another option is to use ExperianCreditWorks, which monitors all three credit bureaus and your FICO score for $24.99 a month.
If you simply want more control over your credit report and credit score, Experian offers the most bang for your buck in terms of personal credit monitoring and identity protection. However, TransUnion offers the most business-related products.
Ultimately, choosing which of the three credit bureaus’ monitoring services is right for you will depend on your budget and the level of control you want. The most important thing is to actually monitor your credit regularly. Take advantage of your free annual credit reports and know your credit score at the very least. Being proactive about your credit report can help ensure your credit report is accurate and can help catch any early signs of fraud, and knowing your credit score is the first step to improving your credit score.
Read our postÂ 5 Ways To Improve Your Personal Credit ScoreÂ and The Ultimate Guide To Improving Your Business Credit Score to learn more.
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