Top 3 Credit Bureaus: How They Work and What They Know About You

Equifax, Experian, and TransUnion are the top three credit bureaus in the U.S. They are private businesses that collect and sell data on the spending and borrowing habits of individual consumers. The data is compiled into a credit report on every individual, with a score that rates the individual's creditworthiness on a scale that ranges from "poor" to "excellent."

Whether a person's application for a credit card, a mortgage, a car loan, or a lease is approved, and at what rate of interest, depends largely on the person's credit rating with one or more of these credit bureaus.

What Are Credit Bureaus?

Credit bureaus compile credit histories on individual consumers, primarily as a way for prospective lenders to assess their creditworthiness. Other businesses such as prospective employers and utilities also routinely check credit scores.

There are slight variations among the bureaus, but credit scores are always three-digit numbers, typically from 300 to 850. The scores are derived from information in the full credit report, including the person's payment history, amount of debt outstanding, length of credit history, credit mix, and number of recent applications for new credit.

The overall score and the details in the credit report are used to determine whether the person qualifies for additional credit, how much will be loaned, and what the interest rate on the loan will be.

Regulation of Credit Bureaus

Credit bureaus are regulated under the federal Fair Credit Reporting Act (FCRA), which defines how they may collect, disburse, and disclose consumer information.

The bureaus rely on information supplied by the banks, finance companies, retailers, and sometimes landlords with which you do business.

The Top 3 Credit Bureaus

In the U.S., the top three consumer reporting bureaus are Equifax, Experian, and TransUnion. This trio dominates the market for collecting information about consumers in the credit markets.

• Equifax. Based in Atlanta, Equifax has about 14,000 employees and does business in 24 countries. In the U.S., it is dominant in the Southern and Midwestern states. It claims to be the market leader in most of the countries where it has a presence.
• Experian. With domestic headquarters in Costa Mesa, California, Experian originally handled reports only for the Western U.S. The firm now employs about 21,700 people in 30 countries and has its corporate headquarters in Dublin, Ireland.
• TransUnion. Chicago-based TransUnion, founded in the 1960s, has regional offices in Hong Kong, India, Canada, South Africa, Colombia, the United Kingdom, and Brazil and employs more than 10,000 people.
  

How the Credit Bureaus Collect Information on You

All three credit bureaus collect the same basic information about consumers. This includes personal data such as name, address, Social Security number, and date of birth. It also includes credit history, including debts, payment history, and credit application activity.

Lenders will typically report payments that are at least 30 days overdue to one or more of the credit bureaus.

How Overdue Bills Are Recorded

If you are delinquent in making a student loan payment, Sallie Mae may report that to a credit bureau. usually when it is 45 days late. Federal loans provide more leeway, allowing 90 days to pass before the loan servicer will file a report of a delinquency.

The Internal Revenue Service (IRS) doesn’t report income tax payments or overdue taxes to the bureaus. However, if a taxpayer does not pay their tax debt in a reasonable amount of time, or if they owe substantial back taxes, the IRS might file a federal tax lien (a legal claim against a taxpayer’s property) with the local county clerk’s office. A tax lien filing is considered public information, and the bureaus can find it through third-party research.

Not all lenders report credit activity to every credit bureau, so one bureau’s credit report can differ from another credit bureau’s. Even when lenders report to all three bureaus, their information may appear on credit reports at different times simply because the bureaus compile data on different schedules.

How Lenders Use Credit Reports

Suppose you apply for a loan, line of credit, or credit card from a bank or other lender. That lender will almost certainly perform a credit check, requesting a report on you from at least one of the three major credit bureaus.

Most lenders refer to only one report from a single credit bureau to determine an applicant’s creditworthiness. Mortgage companies are among the exceptions. A mortgage lender examines reports from all three credit bureaus because of the large amount of money involved.

All of these credit inquiries are noted on your credit report from the bureau that receives the inquiry. At least in the short term, the inquiry itself can affect your credit score, as it reflects your intention to access additional credit.

Credit Rating Agencies vs. Credit Bureaus

Credit bureaus and credit rating agencies are not the same thing. Credit rating agencies collect information on the credit histories of companies and governments, not individuals. The information is used to rate the creditworthiness of companies and governments that seek to borrow money by issuing bonds or preferred stock.

The major credit rating agencies are Fitch Ratings, Moody’s, and S&P Global. These agencies research and analyze a firm’s financials and assign it a corporate credit rating. The ratings are intended to provide investors with information about the financial stability of issuers of debt-based investments. The agencies also rate the debt obligations and fixed-income securities that companies issue.

A.M. Best, another major rating agency, focuses on the insurance industry.

Credit ratings are issued in the form of letter grades, such as AAA or CCC, so that investors can quickly gauge the level of risk in a debt instrument. The ratings differ among the three major agencies, so it is important to understand which one is providing the letters.

Credit ratings are based on many variables, ranging from business attributes to underlying investments, but all are designed to judge the likelihood that a borrower will be repaid.

The Bottom Line

The top three credit bureaus in the U.S. work similarly in that they all provide information on individuals to creditors. However, there are differences in their credit reporting methods and the information that may be supplied to them.

If you are applying for credit, consider obtaining copies of your credit reports beforehand and reviewing them for any errors.