Debt Consolidation

What Are the 3 Major Credit Reporting Agencies — And Why Are They Important?

credit reporting agencies

Your credit report can be a huge factor in your ability to get a loan, credit card or other type of financing — and that can make it one of the most important financial documents in your life. Understanding who compiles your credit report, and what they include on it, can help you improve your overall financial health and access the financing you need when you need it the most.

Credit reporting agencies are the primary gatekeepers for this information. They collect and compile consumer data, specifically as it relates to debt and repayment activities. That information is then used to determine your creditworthiness, or how likely you are to repay your debts, and use that information to determine an individual’s creditworthiness, or how likely they are to repay their debts.

Click below to learn about the three major credit bureaus: Equifax, Experian and TransUnion.

What credit reporting agencies do

Credit reporting agencies are for-profit organizations that collect financial data and other relevant information, and many of them are small agencies that offer specialized reporting. The data includes:

The nation’s big three credit reporting agencies are Equifax, Experian and TransUnion. They compile information for the vast majority of adults in the United States, with less than 11% of U.S. adults flying under their radar.

Your credit report is used by businesses for all types of decisions, including:

  • Loan or credit approvals
  • Employment decisions
  • Government assistance
  • Rental agreements

In that context, Equifax, Experian and TransUnion often serve as the gatekeepers, standing between you and goods, services and relationships you need or want. Understanding what information they collect and how it’s used can help you improve your credit and use it to your benefit.

Information credit reporting agencies collect

Personal information

This information is used to identify you and includes the following:

  • Name
  • Address
  • Date of birth
  • Social security number
  • Employment information

Credit accounts and outstanding debts

This includes revolving credit, like credit cards, as well as installment credit accounts, like mortgages, auto loans and student loans. When compiling information about your credit accounts, credit reporting agencies will typically document the following:

  • Type of credit
  • When you opened the account
  • Your credit limit
  • Current balance
  • Payment history

The type of accounts you have and the activity on those accounts become a major part of your credit score. For instance, despite differences in the scoring methods of the three bureaus, each considers a consumer’s payment history to be one of the most valuable factors in determining a credit score, basing between 35% and 40% of the score on such activity.

Credit inquiries

Credit inquiries show up on your credit report every time a business or organization performs a hard credit check. This is often the case when you apply for a loan or open a new credit card account.

Public records

Not all public records show up on your credit report, but the following ones will:

  • Bankruptcies
  • Liens
  • Foreclosures
  • Judgments

Your credit report varies between agencies

Even though each of the three reporting credit agencies collects similar data, there may still be differences in the type of data they collect, when they collect it and how they factor it into your credit score. That means your credit score may vary between each credit bureau.

Further, even if their data collection methods are similar, they may not always receive the same information. That’s because lenders and creditors may not report your credit activity to the big three credit reporting agencies. Others may not report the same activity or they may report it at different times.

American Express, for example, will report a late payment after 60 days, but they will report it as a 30-day delinquency. Chase, on the other hand, may report late credit card payments as soon as 30 days after the due date has passed.

What your credit report says about you

Your credit report gives anyone reading it insight into how you manage your financial responsibilities. Lenders can then evaluate your report and draw conclusions about you as a consumer, such as how likely you are to repay a loan you take out.

A variety of information is included in your credit report, but lenders often refer to the following factors when determining creditworthiness:

  • Missed payments: A history of missed payments can suggest that you’re unable or unwilling to meet your current debt obligations.
  • High debt-to-income ratio: Your debt to income ratio (DTI) is your total monthly debts divided by your gross monthly income, represented as a percentage. A high debt-to-income ratio can indicate that you may have a hard time meeting new or additional debt obligations.
  • High credit utilization rate: Your credit utilization rate indicates the total amount of credit you’re using, or your balance, as it relates to your available credit. This number includes your combined credit limit and exciting balance across multiple revolving credit accounts (e.g., credit cards). Similar to your DTI, a high credit utilization rate can indicate existing or potential financial problems.
  • Number of credit inquiries: Every time you apply for a credit card or loan, a hard credit inquiry appears on your account. If you have numerous hard inquiries, lenders may be concerned to see that. That’s because numerous inquiries can mean you recently opened several credit accounts.

How your credit report influences your credit scores

To help lenders and consumers understand the relationship between credit activity and risk, credit reporting agencies issue credit scores. Scores typically range from 300 to 850, with 850 indicating excellent credit and 300 indicating poor credit.

A history of on-time payments, a low DTI and a low credit utilization rate will typically lead to a better credit score. When the opposite is true, your credit score can suffer.

How to check your credit reports

Consumers can check their credit for free once per year by visiting AnnualCreditReport.com. Because credit reports can vary, it’s a good idea to check each of them.

Instead of requesting all reports at once, though, it’s a good idea to space your requests out over a year — once per quarter, for example. This will allow you to monitor your credit reports for free each year. Once you take advantage of your annual free reports, you’ll need to pay each time you access them within the same 12-month period.

To request one or more of your reports, follow these steps:

  1. Complete the online form by providing basic personal information, including your birthday, social security number, and address.
  2. Select the credit reports you’d like to check (e.g., Equifax, Experian and TransUnion)
  3. Answer follow-up questions to confirm your identity and receive your report. These questions may vary from agency to agency, but you may be asked you to confirm items like past or existing employers, mortgage lenders, loan payments or addresses. You’ll be required to complete this step for each credit agency from which you’re requesting a report.

Keep in mind that your credit report is different from your credit score, and your score will not appear on your report. You can typically get your credit score for free through select sites and organizations. My LendingTree, for example, allows you to see your credit score for free and some factors that may be influencing it, among other features.

Other credit reporting agencies

The three major credit reporting agencies are not the only agencies that compile consumer data. Other agencies may offer supplemental credit reporting that is similar to the information provided by Experian, Equifax and TransUnion. Some focus on more niche markets, such as:

  • Employment and tenant screenings
  • Auto and driving history data
  • Specific types of borrowers (e.g., subprime)
  • Consumer banking relationships

The table below provides a list of existing consumer credit reporting agencies as recognized by the Consumer Financial Protection Bureau.

Bottom line

Credit plays a significant role in today’s economy, and your ability to access and manage credit will impact your ability to take out a home mortgage, buy a car, get a credit card and participate in other types of consumer financing. Though there are many credit reporting agencies out there, Experian, Equifax and TransUnion represent the most important three.

Actively monitoring your credit with these agencies can help you repair poor credit, build excellent credit and identify any errors, making it easier for you to get the financing you need when you need it.

 

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