by The Ascent Staff | Updated July 21, 2021 - First published on Nov. 20, 2018
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The three top credit bureaus have a major influence over nearly every consumer, yet many people aren't really aware of who these companies are and what they do. Equifax, Experian, and TransUnion are for-profit companies that have carved out a unique niche in the financial industry.
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A credit bureau, also known as a credit reporting agency, collects financial information about consumers and pulls this information together into a single report -- namely, your credit report. Because the credit bureaus operate independently of each other, the credit report that one bureau generates for an individual may be slightly different from the other bureaus' reports. While there are many smaller credit bureaus, the three major ones control the lion's share of this market.
The credit bureaus have an interesting profit model. Banks, lenders, and many other companies share information about their clients with the credit bureaus at no charge. The credit bureaus then compile this information and sell it, in the form of credit reports, to various parties that need some insight into your financial history -- lenders, insurers, potential employers, landlords, and more.
These credit reports are extremely valuable to financial institutions, because they help lenders determine which individuals would be profitable clients. Without a credit report, your bank wouldn't know how much money it's safe to lend you or what interest rate it should charge on the loan. For landlords, your credit report serves as an indicator of how likely you are to keep up with rent, and for employers, a spotless credit report is a sign of reliability.
Your credit report contains some (but not all) of the most important financial data from your past and present. Credit reports include a list of your current and past credit products, including:
Your report will also have the amount of debt you're currently carrying and any late payments or other payment problems you may have had in the last few years. Serious credit issues like tax liens and bankruptcies will also appear on your report. However, your credit report will not include details of your job history or employment status, your income, or certain personal information such as your marital status.
Your credit score is the result of a complicated calculation done by the credit bureau that sums up everything from your credit report to determine how much risk you present for lenders. A high score means that you have a strong track record of keeping up with payments, keeping your debt load low, and generally acting responsibly to lenders, which makes you a low-risk client. A low credit score means that you have a somewhat shadier financial past, such as a history of late payments or collections activity. If you have little or no credit history, you'll have a low score because the credit bureaus don't have enough information about you to decide if you're a risk or not.
The problem with credit scores is that there are tons of different ways to calculate them, so most people have several different credit scores depending on which credit bureau is providing the score. The two basic credit scoring models are FICO and VantageScore. But each of these two scoring models comes in multiple variations, and on top of that, some items from your financial history may not make it to all three credit bureaus. This can create a considerable difference in your scores from those bureaus.
It's a bit creepy knowing that the three credit bureaus are collecting all your sensitive financial data, especially in the wake of the Equifax hack. Unfortunately, there's no way to keep lenders and collections agencies from reporting your information to these companies.
You can minimize any potential problems related to the credit bureaus by checking your credit reports on a regular basis and acting promptly if you find any errors. It's also wise to keep an eye on your credit cards and other open credit products to make sure no one's misusing those accounts. If you have a card that you rarely use, sign up for alerts on that card so that you'll be notified if any transactions occur, and periodically review the statements for your more active cards. Finally, if you see any signs of fraud or identity theft, consider placing a credit freeze with the three credit bureaus. Or, at the very least, set up a fraud alert. These steps could help you become especially diligent about monitoring your credit card activity in the future.
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