Many young adults aren’t aware of the three major credit reporting agencies, much less what these credit reporting agencies do and how it affects them financially. Experian, Equifax, and TransUnion collect and manage personal details about your financial life, generating financial profiles, aka credit reports, that are attached to you throughout your entire adult life. Each credit reporting agency runs your data through their sophisticated algorithms to assign you a credit score. Your credit scores can affect everything from your chances of approval for loans and credit cards to your interest rates for mortgages.
TransUnion, Experian, and Equifax track many of your financial transactions, as well as your:
- Loan & Credit card balances
- History on credit cards and loans
- Number and type of accounts
- Bankruptcy filings
Each credit bureau utilizes this information to determine your credit score.
By law, the credit bureaus – also known as credit reporting agencies – can provide personal information about you to numerous kinds of organizations, including:
- Volunteer groups
- Government agencies
- Retail stores
- Banks and credit unions
- Gaming casinos
- Debt buyers and collectors
- Insurance companies
- Telecommunications and utility providers
- Payment processors
The thought that multiple credit reporting agencies are keeping tabs on your financial transactions may seem like an invasion of privacy. However, there is no effective way to avoid having your financial transactions documented.
The big three credit bureaus dominate the credit reporting industry, although numerous smaller credit reporting agencies track your financial dealings. The Consumer Financial Protection Bureau, aka CFPB, maintains a list of dozens of smaller agencies and the main ones.
The “fourth bureaus” have entered the credit reporting market to serve niche markets, says Thomas Nitzsche of Money Management International. Some track rental history payments, while others track payments to payday loan lenders.
Experian, TransUnion, and Equifax each maintain a credit report on you.
Your day-to-day financial transactions make up the majority of your credit reports. If you apply for a line of credit, credit card, or loan, the lender is likely to request a credit report from at least one of these credit reporting agencies. That “inquiry” will then appear in your reports for two years.
Two other types of personal information find their way into your credit report and can negatively affect your scores.
Debt collectors often report information about you to the credit bureaus, such as your failure to pay debts on time. For this reason, you cannot assume that overdue payments on utility or TV bills, an unpaid gym membership, or even a magazine subscription will not appear on your credit report.
Credit reporting agencies may insert public records, such as bankruptcy filings, into your credit reports.
In recent years, medical debts, civil judgments, paid collection debts, and tax liens no longer carry as much weight as they once did with the credit bureaus.
As each credit bureau collects your financial information, it goes into a credit report that serves as the foundation of your credit score. To compute a credit score, the agencies must couple a credit report with a scoring model.
The prime scoring models, VantageScore and FICO, are the King Kong and King Kong Jr. of the credit scoring industry.
FICO created and owns the earliest and most widely adopted scoring model. FICO allows credit reporting agencies to use its proprietary algorithm to produce credit scores.
The company determines which factors, such as the amount of credit available to you and your payment history, weigh most heavily on your score.
The credit bureaus don’t have any influence over the weighing of information in your FICO score. FICO has control over the weighted factors because they are the ones that invented the scoring model.
Because each credit reporting agency supplies data from its credit report to the FICO model, credit scores vary from agency to agency. Many times there isn’t much difference in credit scores if reporting is relatively consistent. However, scores could be very different if there are, for example, charge-offs or collections on one agency’s credit report but not being reported on another. Your credit score is highly likely to be different across the three because the data will not be the same.
In recent years, Transunion, Experian, and Equifax joined forces to create their credit scoring model, VantageScore, as a modern alternative to FICO.
It is a good idea to check your credit report at least annually. Although you don’t have the right to “opt-out” of having a credit report, you should still confirm the information being reported in your credit report is 100% accurate.
Consumers do have the right to challenge information within their credit reports.
Federal law requires each credit bureau to offer to provide consumers with a free annual copy of their credit report. You can request this free credit report at AnnualCreditReport.com, which the three bureaus collectively operate.
In addition to these annual credit reports, you can request an updated credit report when:
- Your credit reports appear to be incorrect because of fraud.
- You were denied credit, employment, or were the target of another adverse action based on your credit reports.
- You require access to a credit report to place an initial fraud alert.
- You are unemployed and plan to seek a job within 60 days.
- You are the recipient of welfare benefits.
- Your state’s laws allow you free access.
If you discover an error on your credit report, inform the proper credit bureau, and request the account be deleted. Review your other credit reports to detect if the error appears on those credit reports too.
A credit freeze can provide an additional layer of security for your credit reports if you are concerned with becoming an identity theft victim. Freezing your credit reports at the three primary credit reporting agencies is the step to take.
Doing so blocks thieves from opening new accounts in your name. However, opening legitimate credit accounts while your credit report is frozen is almost impossible. Due to a federal law passed in 2018, you have the right to freeze and unfreeze your credit reports at will and for free.
Parents can request a credit freeze for their children under age 16.
To place a freeze on your credit, you must contact each of the three major credit bureaus. If you request the credit freeze online or by phone, the credit bureaus must place the freeze within one business day.
After the credit freeze is in place, it is perpetual until you request each credit bureau lift it. If you decide to lift a credit freeze and submit your request by phone or online, the credit bureaus must comply within one hour.
If you request to add or lift a credit freeze by mail, the credit bureaus have three days to complete your request.
When you’re preparing to make a significant purchase, such as a new home or automobile, do yourself a huge favor and don’t put off until the last minute to check your credit report for errors. Often it takes a matter of weeks or months to get issues resolved. You should want to see what’s on your credit report every month.
Finally, paying your bills on time is paramount to keeping your credit score healthy. Sign up for automated payments whenever possible, so you don’t forget to pay a bill. Due dates seem to creep upon us, and you might miss a reminder.