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The 3 national credit bureaus: How Equifax, Experian and TransUnion work

How they use your credit history data to generate credit reports and credit score

Summary

The three major credit bureaus – Equifax, Experian and TransUnion – compile personal and credit information of borrowers to help lenders and creditors make objective decisions.

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Credit bureaus, also known as credit reporting agencies, perform an important role in today’s world. Their primary function is to help lenders make objective and accurate decisions about prospective customers.

To that end, these independent, for-profit companies collect peoples’ credit and debt activity, then create reports that financial institutions and other businesses can access. Because the credit reports change as the data is updated, businesses gain valuable insight into a person’s financial past and evolving account management habits.

Here’s how credit reporting bureaus work – both for you and for the companies that depend on them.

What are credit bureaus?

Credit bureaus are agencies that compile borrowers’ credit history data and use that information to create credit reports and credit scores. Lenders and creditors purchase this information to help them assess the creditworthiness of their customers and make decisions about approving them for credit.

The most popular and well-known product the credit reporting bureaus offer is the consumer credit report, which is a record of how a consumer has been managing their credit accounts and financial obligations. Credit reporting bureaus are required by law – the Fair Credit Reporting Act (FCRA) – to make sure the information on the reports is both correct and timely.

Credit bureaus use credit scoring algorithms that incorporate the data from your credit report and generate your credit score. These scores are three-digit numbers between 300 and 850 and impact whether or not you are approved for credit products, and the interest rate and terms you receive.

Credit bureaus are private companies that are highly regulated by the federal government. The FCRA mandates a number of consumer protections and limits how these agencies can collect, disburse and share consumer information.

The top three credit bureaus

Although there are a number of credit bureaus in the United States, the big three are Equifax, Experian and TransUnion. While each bureau essentially does the same thing, they are in competition with one another and thus have their own set of unique products and services.

Equifax

Equifax is based in Atlanta and operates in 25 countries through the efforts of 13,000 employees. In addition to providing credit reports, the company also offers credit monitoring and identity protection services.

In 2017, Equifax’s data systems were breached, compromising the personal information of 147 million customers. In response, Equifax offers a look-up tool to check and see if your information was compromised. If so, you may be entitled to free credit monitoring services or up to a $125 cash payment.

Experian

Experian’s 20,000 employees work in 44 countries, with corporate headquarters in Dublin, Ireland and operational headquarters in Nottingham, England and São Paulo, Brazil. The company’s domestic headquarters is in Costa Mesa, California.

The company offers free credit reports and credit scores while Experian Boost gives you the chance to “raise your FICO® Score instantly” by including your utilities, streaming services and phone providers in your credit score calculations. Though results are not guaranteed, Experian claims average users who received a boost improve their FICO Score 8 based on Experian Data by 13 points.

TransUnion

TransUnion maintains corporate headquarters in Chicago, with regional headquarters in Hong Kong, India, Canada, South Africa, Colombia, England and Brazil. In all, the company employs 10,000 people.

In addition to free annual credit reports and fraud alerts, TransUnion offers premium paid services, including credit monitoring, credit protection and a credit score simulator.

Why credit scores differ among the bureaus

While credit reports and credit scores are often referred to synonymously, they are separate products. A credit report is a written document that details your credit history, whereas a credit score is a numerical expression of relevant data from the report.

Credit scorers take information that appears on a credit report and input it into proprietary mathematical models, turning it into a numerical score that helps a lender predict credit risk. Your scores will fluctuate as your credit history is updated. Keep in mind that your credit information may not be reported to all three credit bureaus.

Since the data is supplied by lenders, collection agencies and court records, each bureau might have different information. Lenders also report credit information at different times, which often results in one agency having more up-to-date information than another.

Additionally, while most creditors furnish information to all three of the major bureaus, third-party collection agencies are often the exception.

“Collectors often choose to report to one bureau over the other,” says Yosef Brailofsky, founding partner at Goldminecredit.com, a credit education company. “So you should get your reports from all three to know for sure.”

The two most common credit-scoring companies are the Fair Isaac Corporation (FICO Score) and VantageScore. The scores range from 300 to 850. While both scorers use the same data, their calculation methods are different.

FICO scores weigh the following as most to least important, as expressed in percentages:

  • Payment history: 35%
  • Credit utilization: 30%
  • Length of credit history: 15%
  • Credit mix: 10%
  • New credit: 10%

VantageScores are based on what it considers most and least influential:

  • Payment history: extremely influential
  • Age and type of credit: highly influential
  • Percentage of credit limit used: highly influential
  • Total balances and debt: moderately influential
  • Recent credit behavior and inquiries: less influential
  • Available credit: less influential

This is why, depending on the bureau and credit scoring company used, your credit information can vary. However, if your credit report shows a number of well-managed accounts that you’ve had for years, a low debt-to-credit-limit ratio, no bankruptcies and few hard inquiries, not only will your credit report be attractive, but you’ll also have high scores.

Do you need credit scores from all three bureaus?

Since lenders and creditors choose which credit bureau they’ll pull your credit information from, it’s wise to regularly check your credit report and credit scores from all three agencies. Doing so allows you to ensure the information being reported to agencies is accurate and up to date, and that the credit scores correctly reflect your creditworthiness based on the information in each bureau’s credit report.

You may be able to access your credit score for free. Many credit card or auto loan companies now provide credit scores to their customers on their monthly statements or online account dashboard. However, the companies that furnish credit scores typically only show the score from one credit bureau, not all three. If you want all three scores, you may have to pay for a service, such as MyFICO, or purchase access from each bureau individually.

By law, you can receive free copies of your credit report from each reporting agency every 12 months. You can access your credit reports at AnnualCreditReport.com for free. What’s more, due to the pandemic, consumers can access free credit reports every week through the end of 2022.

Bottom line

The three major credit bureaus play an essential role in the decisions of lenders and creditors when it comes to approving you for credit cards, loans and other credit products. In this way, the information they collect and share with lenders can directly impact you financially.

But as we’ve seen, the credit reports and scores can vary from bureau to bureau. That’s why it’s a good idea to check your credit reports and credit scores before you submit a credit application – you can identify and resolve any issues beforehand, and you’ll have a clearer picture of your credit.

Editorial Disclaimer

The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.

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