The Three Credit Bureaus: Everything You Need To Know

10/20/2021

Many people associate credit bureaus with their credit score, but they are responsible for much more than just your credit score. Credit bureaus collect information from financial institutions, banks, collection agencies, and creditors to compile a comprehensive report on each individual's credit behaviors. The three main credit bureaus are Equifax, Experian, and TransUnion. These three bureaus are also called credit reporting agencies or CRA's and they are each publicly traded, for-profit companies. There are other smaller credit report agencies, but creditors and lenders are more likely to check your credit with one of the major bureaus.

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Establishment of the three credit bureaus

The credit reporting agencies have actually been around since the 1800's. In fact, Experian began in 1897 when a man named Jim Chilton created the Merchants Credit Association. He created this new credit association because the local merchants voiced concern that they didn't know who they were giving credit to. This led to Jim going from merchant to merchant, in Dallas, Texas, taking notes on how consumers paid and then assessing their risk and ability to repay their debts. How did he do this? He actually wrote down all of the information the consumers were providing him. All of this gathered information is what lead to the creation of the Merchants Credit Association.

Equifax also started collecting credit in the 1800's.  Equifax was founded in Atlanta, Georgia in 1899 and was originally established as Retail Credit Company. This bureau was established by two grocers who compiled a list of customers who did or didn't pay back their tabs. These tabs were then complied into a book which was sold to merchants. The company started to grow quickly and in 1979 the Retail Credit Company changed its name to Equifax.

TransUnion was created in 1968 and originally began with the railway equipment leasing company, the Union Tank Car Company. They started as a parent holding company for the Union Tank Car Company and then branched out from there into credit reporting. A year later in 1969, TransUnion acquired the Credit Bureau of Cook County. This gave them credit data for 3.6 million Americans. By 1988, the company had full coverage and consumer information on every market-active adult in the U.S.

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How do credit bureaus get my information?

If you have credit, credit bureaus know a great deal of information about your financial history. From the time you opened your first credit account, the credit reporting agencies have details related to you and your credit history. They collect all information about your credit account including, payment history, amount of credit you have available, and the amount of credit you're using. They also have details on your public records, such as, bankruptcy, tax liens, foreclosures, and repossessions. Not only does a credit bureau know all about your financial standing, they also have your personal information like your date of birth, current and previous employers, and your current and previous addresses.

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This is a lot of information about yourself, so how do these bureaus obtain all of this financial and personal information about you? This process starts with the credit reporting cycle and the consumer who has decided to create and use credit. The information you use to apply for credit launches the credit reporting cycle. This begins when you open an account then make payments as agreed, or when you miss payments. Each month the creditors update their records and share your account status with the credit reporting agencies. Then, the credit reporting agencies update your credit history. This is the information shared with potential future creditors. The credit bureaus also collect bankruptcy filings and add them to your credit report because they're directly related to debt.

Your Credit Score

As mentioned earlier, the first thing many people associate credit bureaus with is their credit score. It's assumed that each of the bureaus create your credit score based off of your credit history. This is actually a common misconception. The credit bureaus are not responsible for your credit score. The credit scores are determined by the credit scoring models that utilize an algorithm to analyze the information in a person's credit history and then assign a score. There are two common credit scoring models that many people are familiar with: FICO and VantageScore. You can see your credit score through one of the bureaus, but it's usually labeled based on which scoring model was used. This is also why you might see a different credit score when checking your report on one of the three credit bureaus. The reason your score might be different is because not all of the bureaus use the same scoring model to get your credit score.

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Your Credit Report

A credit report is a summary of how you have handled your credit accounts over time. This includes types of credit accounts you have and your payment history as well as certain information that's reported to credit bureaus by your lenders and creditors. When you're searching for your credit report, a credit bureau is a great place to find it. You should be checking your credit report once a year, at minimum for any errors. The data in your credit report is placed into five distinct categories.

The first category is identifying information. This information is your personal information, such as, your name, address, social security number, and date of birth. Next is your credit account information. This includes types of accounts, the date those accounts were opened, your credit limit or loan amount, account balances and your payment history. Closed accounts that have dropped off your report after a certain time period or accounts not reported by lenders will not be included in this credit information.

Inquiry information is also included in your credit report. The two types of inquiries are soft and hard inquiries. Hard inquiries occur when companies or individuals review your credit report because you have applied for a credit service. These inquiries stay on your credit report for up to two years and can negatively impact your credit score. A soft inquiry on the other hand does not impact your credit score. An example of this would be when a lender orders your report to send you a pre-approved credit offer. Soft inquiries are only visible to you. The next category on your credit report is bankruptcies, which includes your filing date and type of bankruptcy. The last category in your credit report is collections accounts. This includes debt that is overdue and has been sent to collections.

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It may seem like every aspect of your life is reported to the three credit bureaus, but there are some things that cannot be reported to the credit reporting agencies. Some things that cannot be reported are your criminal background, your medical information, your buying habits or transaction data, your income, and your bank account information. This means if the information is not debt related, the bureaus cannot report it.

What services do credit bureaus provide?

Your credit report is refreshed every 30 days on all the credit bureaus. This means your report is always up to date. By using a credit bureau to check your report frequently, you'll be able to spot any errors on your credit report. Other than your credit report you can check your credit score through the credit reporting agencies. The agencies also offer credit monitoring services. This service notifies you of any activity about your credit. For example, if someone opens an account in your name you'll be notified. If you personally didn't open this account, you'll be able to immediately notify your creditors and have it shut down. This is a great way to help prevent fraud. Bureaus can also provide dark web surveillance reports, and credit card and loan matching services.

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Don't forget to check your credit report at least once a year through one of the credit bureaus. This will help you spot any fraudulent activity and keep your credit score in good standing. Remember, the bureaus don't calculate your personal credit score. When you see your score through one of the credit reporting agencies, remember it's probably a FICO or VantageScore credit score. The credit bureaus do a lot more than provide you with your credit report, take advantage of the other free services the credit bureaus provide.

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