Understanding Credit Bureaus: Who They Are and What They Do
Credit bureaus play an important role in lending and borrowing. They collect data about your credit, creating credit reports that contain key information such as when, where, how much you borrowed, whether you were a co-borrower or guarantor, and how well you made your payments. These reports are used to calculate credit scores and make credit decisions. In this way, credit reporting agencies help lenders assess the reliability of borrowers, reducing risks and facilitating the credit decision-making process. It’s also beneficial for borrowers: credit reports allow them to monitor their financial reputation, and a good credit score can open up access to better credit terms, such as lower interest rates and higher limits.
What are Credit Bureaus?
A credit bureau is an organization that collects, analyzes, and stores information about citizens’ credit histories. It cooperates with banks, credit unions, insurance companies, and other lenders.
As soon as you apply for a new loan, the bank or credit organization immediately sends a request to the credit bureau to check how disciplined you were as a borrower in the past and how likely it is that the bank can trust you in the future.
Here are the key elements that the bureaus record:
- Identification information: Your full name, addresses (current and past), date of birth, and Social Security number, which help identify you among other borrowers.
- Account information: Current balances on your lines of credit, their limits, and the dates you opened and closed your accounts so that banks can see how much money you have available and how long you’ve been using them.
- Credit activity: This includes requests from financial institutions to check your credit score (called hard inquiries), which show how often you’ve applied for credit.
- Payment history: The dates and amounts of your regular loan payments are recorded. Missed or late payments are also included, as this affects your credibility as a borrower.
- Debt information: Information about debts referred to collectors or bankruptcy records, if any. This shows lenders what difficulties you may have faced and how financially stable you are now.
Top 3 Credit Bureaus
Your credit score is based on data processed by the three largest credit bureaus: Equifax, Experian, and TransUnion. These companies track your financial activity, including accounts, debts, and payment history, to help lenders assess your credit risk. Since each bureau operates separately, their reports may vary slightly — each has its sources of information.
Equifax
Equifax is the largest and oldest bureau, founded in 1899. It processes data on over 800 million people and 88 million companies worldwide. Equifax provides lenders with information about a borrower’s creditworthiness, including payment history, current debt, and delinquency. The bureau also develops analytical solutions that help banks and financial institutions more accurately assess credit risks. Equifax is actively working on data protection technologies and offers consumers services to monitor their credit profiles and prevent fraud.
Experian
Originally from the UK, Experian has been active in the US since the 1990s and serves more than 235 million customers. The bureau is focused on transparency, with reports that help people understand and manage their credit history. The bureau provides tools such as Experian Boost, which helps improve your credit score by considering timely utility payments and other bills. Experian also offers comprehensive solutions to protect against identity theft, including monitoring suspicious activity and freezing your credit report to prevent unauthorized use of your data.
TransUnion
Founded in 1968 and covering credit data for more than 200 million people, TransUnion provides convenient online access to credit reports, allowing users to check and dispute errors to keep their information current. With a special focus on data protection, TransUnion offers services to monitor your credit profile and detect fraudulent activity early. The bureau is actively developing solutions based on data analysis and artificial intelligence, helping lenders make more informed decisions and offer customized terms to borrowers.
How Do Credit Bureaus Evaluate Your Credit Score?
Credit scores play an important role in every person’s financial life. They help lenders assess the borrower’s creditworthiness and, as a result, affect the lending terms. Credit bureaus use two main models to assess credit scores: FICO and VantageScore. Here is a detailed comparison of them:
| Criteria | FICO | VantageScore |
| Payment history (timely payments on all loans; negative entries lower the rating) | 35% | 40% |
| Debt amounts (total debt compared to credit limits; a low debt-to-limit ratio improves the rating) | 30% | 20% |
| Length of credit history (age of oldest and newest account; long-term loans have a positive effect on the rating) | 15% | 21% |
| Credit mix (variety of loan types; diversity has a positive effect on rating) | 10% | N/A |
| New loan (number of new credit accounts and inquiries; frequent inquiries can lower your score. | 10% | 5% |
| Balances (total balance on credit accounts; low balances help improve your score) | N/A | 11% |
| Available credit (the amount of credit available but not used; high unused credit indicates financial strength) | N/A | 3% |
So, FICO focuses more on payment history, debt, and credit mix. VantageScore is more flexible, focusing on payment history and credit mix.
What are the Key Variations Among Major Credit Reporting Agencies?
All three major credit reporting agencies — Experian, Equifax, and TransUnion — collect similar information about consumers’ credit histories and offer similar services. However, their main differences concern the ranges of credit scores and the calculation methods used to create them.
Experian and Equifax use the FICO scoring model, with credit score ranges of 300 to 850 and 250 to 850, respectively. Higher scores indicate a better credit rating. TransUnion, meanwhile, uses the VantageScore model, which also has a range of 300 to 850.
Where Does Credit Bureau Information Come From?
Credit bureaus collect information from various sources to create a credit report. The main sources of data include:
1. Financial Institutions
Banks, credit card issuers, credit unions, and other lenders regularly report to credit bureaus, providing information about each borrower. The report includes the following data:
- outstanding balance;
- payment dates and amounts;
- credit limits;
- information on active accounts and any overdue debt.
2. Lenders
When you apply for a loan, lenders check your credit history. This hard inquiry is recorded on your credit report, which can lower your credit score. Lenders also report new open accounts.
If debts are turned over to collectors, this information is also reported to the credit bureaus, which can negatively affect your score.
3. Public Records
Credit bureaus use data from public records. These are publicly available documents, such as:
- Bankruptcies: cases where you can’t pay your debts.
- Tax liens: debts owed to tax authorities.
- Judgments: the results of financial disputes in court.
These records show important events in your financial life and can affect your creditworthiness.
4. Utilities and Landlords
Utilities and landlords may report your payment history to credit bureaus. Although less common, information about late payments can affect your credit report.
5. Self-Reported Data
Some credit bureaus, like Experian, allow you to supplement the information yourself. For example, with Experian Boost, you can include your rental payment history in your report, improving your credit score.
Credit History Confidentiality
To prevent data leaks, credit bureaus use encryption technology. This means that when information is transmitted, the credit information is converted into a secret code.
Credit bureaus are also regularly audited to ensure they comply with privacy regulations and fix security vulnerabilities. Under the Fair Credit Reporting Act (FCRA), you have rights that help keep your credit information private. You can check your credit report for free once a year, correct any incorrect information, and decide who can see your credit report.
When you want to access your credit report or amend any details, you need to authenticate yourself by answering multiple questions or providing personal information. This proves that only you can access or update your information.
How to Check Your Credit Report?
To request a credit report, visit AnnualCreditReport.com and fill out a form. You will be asked to provide personal information, including your name, Social Security number, current address, and date of birth, to verify your identity.
Once you receive your report, it is important to review it carefully for errors, such as:
- Incorrect personal information.
- Accounts that do not belong.
- Incorrect balances.
You can dispute errors directly with the credit bureau if errors are found. Each bureau has procedures for resolving disputes, which can be initiated online, by phone, or by mail.
It is a good idea to check your credit report regularly. You can get one free report from each credit bureau once a year. It is a good idea to stagger your requests: for example, request an Equifax report in January, an Experian report in May, and a TransUnion report in September. This will allow you to monitor your credit history effectively throughout the year.
Actions when an Error in the Credit Rating is Discovered
When you find an error in your credit report, it is important to act quickly. First, prepare a letter to each credit bureau where the error was found. The letter should include your name and contact information and clearly explain the error. Including the name of the company that provided the incorrect information is important.
A copy of your credit report with highlighted errors should be attached to the letter. This will help the specialists understand the situation more quickly. It is also a good idea to include supporting documents, such as bank statements or account statements, that will help explain why the information is incorrect.
After sending the letter, the credit bureau must investigate within 30 days and report the result. If the error has been corrected, requesting a new credit report is recommended to ensure the changes have been made.
Conclusion
Each bank has its scoring system. However, credit history is its most important component regardless of differences in credit bureaus. 80% of loan refusals occur precisely because of a bad credit history. Therefore, having received a loan, you need to take maximum care of timely repayment to maintain a positive credit history, and your chances of loan approval in the future are high. It is also important to regularly check your credit reports for errors and, if necessary, dispute them.