What Do Credit Bureaus Do?
A credit bureau collects data on your borrowing history from lenders to create a credit report and a credit score, both of which are used by prospective lenders and other groups when assessing your creditworthiness.
There are three major credit bureaus in the United States: Equifax, Experian and TransUnion. While they collect and report data similarly, there are some slight differences in how they calculate credit scores.
What does a credit bureau do?
Credit bureaus are agencies that gather and report information on consumers’ credit histories. To inform lending decisions, creditors and lenders submit inquiries to credit bureaus to review that information, verify credit histories and find your credit score. Landlords, insurance companies and government agencies can also request information from credit bureaus.
Ultimately, those inquiries help lenders decide whether to approve a borrower for new credit. Before giving you a loan, lenders like to see that you’ve had a strong record of responsible credit usage. Credit bureaus synthesize all the information from your credit report into a single number: your credit score. This three-digit number isn’t the only factor in determining approval, but it’s very important.
What is a credit score?
Credit bureaus calculate credit scores — a simple metric for someone’s creditworthiness — by gathering data on your payment history, credit utilization, the length of your credit history and other credit information.
There are two main types of credit scores: FICO Score and VantageScore. Both scoring models use the same credit score range — 300 to 850 — though what it takes to achieve an “Excellent” credit rating differs between models.
What is a credit report?
Credit reports are a detailed record of your credit history. They include information about your credit accounts, what your credit limits are, whether you’ve paid your bills on time and if there are any negative marks like late payments or bankruptcies. Your report may also include a list of businesses that extended credit to you and a list of businesses that have obtained a copy of your report.
You’re entitled to a free copy of each of your three credit reports once a year at AnnualCreditReport.com. Through the end of 2023, you can access your free reports weekly.
How credit bureaus gather information
Lenders and creditors rely on the credit bureaus to provide accurate information, so they have an incentive to report your credit history to the bureaus, too. Credit card issuers, mortgage companies and a variety of other lenders all commonly report your activity to the bureaus.
In addition to compiling the information they receive from creditors, the credit bureaus also keep track of when credit inquiries were made, that is, when a lender requested a copy of your report. Credit bureaus collect biographical data to confirm your identity, like your Social Security number and address, and they review public records for financial information as well.
It is common for a credit event to appear on one bureau’s report but not the others. Not all lenders and creditors report your records to each credit bureau, which can lead to inconsistencies in your credit reports. For example, your credit card may report your on-time payments to Experian, but not Equifax and TransUnion. This is normal but can lead to differences between reports and credit scores.
The 3 credit bureaus
Three main credit bureaus gather and report credit data in the United States. If you’re applying for new credit, your lender will likely get your information from one of these agencies:
Equifax was founded in Atlanta, where it’s currently headquartered, in 1899 as Retail Credit Co. It also provides credit reporting services in South America and Europe. Equifax recently settled a class action lawsuit over a massive 2017 data breach that exposed personal information.
Experian started operations in the United States in 1897 — it began in England as a group of tradesmen that shared information about their debtors. A British conglomerate currently owns the company.
TransUnion is the newest credit bureau, relatively speaking (founded in 1968). The credit bureau expanded into business credit reporting and consumer credit protection services, and now TransUnion has a presence in more than 30 countries.
Other credit bureaus
Although they aren’t as commonly referenced, there are additional credit bureaus beyond the three major players. These consumer reporting companies often specialize in a certain kind of credit reporting, including:
- Employment screening
- Tenant screening
- Check and bank screening
- Personal property insurance
- Low-income and subprime
- Supplementary reports
How credit bureaus affect your finances
They might not make for exciting dinner table conversation, but Equifax, Experian and TransUnion and their credit reporting practices have a big impact on your finances. Their reports affect your access to loans, credit cards, mortgages and more, and your credit score influences what kind of interest rates you’ll pay for those products.
Incorrect information on your credit report could potentially hurt your ability to borrow and force you into higher rates. It’s important to regularly check your credit reports to ensure your information is accurate. If your score takes an unexpected plunge, it’s worth checking to see if there are any errors and disputing any inaccuracies you find.