Credit Reporting Agencies

There are dozens of “credit reporting agencies” out there, including industry-specific credit bureaus, but only three typically matter. They include:

- Equifax
- Experian
- TransUnion

These credit reporting agencies, also known as credit bureaus, are the largest in the United States and possibly the world. They are relied upon by major banks and lenders for most consumer credit reports and credit scores.  They also sell credit reports and scores to consumers, so you might already recognize the names (3 credit scores).

What do the credit reporting agencies do?

Well, they do a few things. First off, credit reporting agencies collect consumer credit information from banks, creditors, and other lenders each month. Think of them as huge repositories of consumer information. This includes payment information, such as whether you made on-time payments or fell behind, and also how much you borrowed and how much credit you have available.

Every auto loan, lease, credit card, and mortgage payment is reported to one, two, or all three credit reporting bureaus. Applications for credit, known as credit inquiries, are also reported to these companies. And public records, such as bankruptcies, foreclosures, and tax liens, are collected as well.

They compile this information, known as your credit history, so creditors can determine what type of risk you pose. And it’s actually a two-way street. These same credit reporting agencies provide those same creditors with information about you when a credit inquiry is made. When the inquiry is made, the credit reporting agencies provide creditors with a credit report and credit score, using the data previously collected.

The credit score is based on an algorithm from either Fico score or VantageScore, which are the two biggest credit scoring companies out there. Without the collected information, the credit scoring algorithms would essentially be useless.

The credit report contains all the information the credit reporting agencies collect. If your credit report happens to includes a credit score from each agency, it’s considered a “tri-merge credit report.” These are probably the most thorough credit reports you can receive, as you’ll know where you stand with all the major credit reporting agencies. This is important if the creditor in question happens to use the median score of all three, and also if they pull your credit with just one bureau.

Credit Reporting Agencies Report Differently

It’s common for credit scores to display some divergence because the credit reporting agencies report things differently. They receive data from your creditors at different times, and not all creditors send their information about you to all three. Finally, the credit reporting agencies define consumer tradelines differently, which skews the data. For these reasons, some creditors may want to know all three credit scores to ensure they didn’t miss anything. Mortgage lenders in particular are known for pulling tri-merge credit reports, so be forewarned.

Why are the credit reporting agencies important?

Banks, lenders, and credit card companies use the information credit reporting agencies collect to determine whether to extend credit to you or not. If the credit reporting agencies didn’t exist, creditors wouldn’t know much about the consumer applying for credit. Sure, they might know about their own customers, but how would they be able to gauge new customers? The data collected by these firms is hugely important in determining credit risk.

What this means is that every move you make credit-wise is documented, so be sure not to slip up. If you do, it will surely be noted and shared with other creditors. However, credit reporting agencies have been known to make mistakes as well, so be sure to scour your credit report for errors. If you do identify a discrepancy, you can dispute it with the credit reporting agencies directly on their respective websites. Doing so may boost your credit score dramatically, so be sure to stay on top of your credit!