What Are Credit Reporting Agencies?

March 12, 2020 | by CreditRepair.com

credit reporting agencies - women looking at report

Credit reporting agencies (also called CRAs or credit bureaus) are companies that collect information about your credit history, then compile it and sell it to potential lenders in the form of a credit report.

There are three major credit reporting agencies: Equifax®, TransUnion® and Experian®. There are also a handful of other, smaller agencies that generate specialized reports. If you’ve ever applied for a credit card, loan, mortgage or apartment rental, it’s likely you’ve had your potential lender or landlord order your credit report from one of the three major credit bureaus.

So! *Rubs hands together* Let’s get started. We’re going to talk about these agencies, explain the role of CRAs in the lending process and answer common questions about credit reports and scores.

What Are Credit Reporting Agencies?

Credit reporting agencies are privately held companies (not government agencies, that’s a common mistake) that compile an individual’s personal borrowing history into a credit report. Lenders can use this credit report to evaluate a potential borrower’s creditworthiness before approving (or denying) a credit application.

Credit bureaus collect information from every bank, credit card and loan issuer that reports to them. If you have current or closed credit accounts with those financial institutions, they will report your information. Every time you apply for a new card or loan, in most cases the lender will order your most recent credit report (depending on the type of lender).

The credit reporting agencies enable potential lenders to get a full picture of your credit usage and payment history in one credit file instead of querying each of your accounts individually.

What Information Do Credit Reporting Agencies Use?

Credit reporting agencies gather four main types of information: collections and public records, personal information, credit accounts and inquiries.

things that won't appear on a credit report - protected personal information, non-credit finances, personal history

Personal Information
Credit bureaus report information like your social security number, name, address and birthday to confirm that a report is yours.

Credit Accounts (Tradelines)
For every mortgage, car loan, student loan, bank credit card, store credit card and any other credit account you’ve ever held, the credit reporting agencies keep a full record of details including:

  • Open and close dates
  • Type of repayment (installment, revolving, or open)
  • Number of late and on-time payments
  • Credit limits
  • Amount of credit used (also called your credit utilization ratio)

Collections and Public Records
If you’ve ever had an unpaid debt sent to a collections agency, it will be recorded on your credit report.

Missing a payment or making a late payment won’t automatically harm your credit—late payments are typically not reported to the credit bureaus until the bill remains unpaid for over 30 days. On some reports, bills left unpaid for 60 days or more may have bigger consequences.

More serious infractions that are matters of public record may appear on your credit report as well. These include:

  • Bankruptcies
  • Defaulted loans
  • Tax liens
  • Home foreclosures
  • Evictions

As for how long a negative item stays on your credit report—most incidents will remain for around seven years. Bankruptcies and tax liens can stay on a report for 10 years.

Inquiries
A credit inquiry is any request to see your credit report. There are two types of credit inquiries: “hard” and “soft” inquiries.

  • Hard inquiries: A “hard” inquiry is a request made by a potential lender when you apply for a new credit account or sign a lease on a car or apartment. Hard inquiries are visible on your credit report for two years, and too many hard inquiries in a short period of time will damage your credit score.

  • Soft inquiries: On your own credit report, you can also see “soft” inquiries. These happen when you request your own report, when you’re pre-approved for a new line of credit, or when an existing lender checks in on your credit report. Soft inquiries are not visible to potential lenders and do not impact your credit score.

hard credit inquiries - requests made by credit card companies, potential loan issuers, and potential landlords.  Soft credit inquiries - requests made by credit owner, existing lenders, and potential lenders

What Can’t Credit Bureaus Do?

Though the influence your credit reports have on your life may make CRAs seem all-powerful, credit bureaus cannot change your credit score. They also can’t approve or deny any applications you submit—only lenders can do that.

There are also some types of information that will never appear on credit reports from the three main bureaus, like your marital status, income, education level, current bank account balance and any other private data that could lead to discrimination.

Bills like utilities and rent, which aren’t tied to credit, aren’t generally reported to the three main credit bureaus unless you sign up for a service with the credit bureaus that allows you to include this information. For example, Experian offers Experian Boost.

Who Governs the Credit Bureaus?

The credit reporting agencies are privately owned. However, they are subject to U.S. government regulations designed by the Federal Trade Commission to protect consumers.

The Fair Credit Reporting Act is a federal law that ensures that individuals have access to everything in their own report, protects the borrower’s right to dispute errors, and ensures that only those with legitimate inquiries are able to request and view a person’s credit report.

Fair Credit Reporting Act protects your right to: access your own report, dispute errors, and prevent illegitimate credit inquiries

How Many Credit Bureaus Are There?

There are three major credit bureaus called TransUnion, Experian and Equifax. There are also smaller, more specialized credit bureaus that are often collectively referred to as “the fourth credit bureau.”

What Are the Differences Between Credit Agencies?

The main difference between the top three credit reporting agencies is that their credit scoring ranges and calculations are slightly different. They are:

Each credit agency works with slightly different information than the others. It’s not mandatory for lenders to report to the bureaus, and most will only report to one or two of them. As you’re comparing your credit score between the three of them, it’s not unusual for your scores to be different by a few points. It is unusual for them to be significantly different, though.

For example, it’s unlikely that Experian would show you having a credit score of 740 when TransUnion shows that you have a score of 590.

Your credit score can vary by a few points between credit bureaus

The “Fourth Credit Bureau”

You may have heard references to “the fourth credit bureau,” a phrase which actually refers collectively to a group of smaller, specialized agencies. These smaller agencies include:

While the three major bureaus’ goal is to offer a complete picture of your lending history, the smaller credit agencies specialize in specific areas, like tenant screening or medical history.

If you have little to no credit history (if you’ve never had a credit card or loan before, for example), using a small credit bureau could provide lenders with a more accurate picture of your financial health than TransUnion, Experian or Equifax.

How and When to Get Your Credit Reports

You can get copies of your credit report by filling out an application at AnnualCreditReport.com. You are entitled to one free annual credit report from each of the big three bureaus (TransUnion, Experian and Equifax).

It’s recommended that individuals apply for each of their three free reports individually over the course of a year rather than ordering all three at once. That way, your free credit reports give you a consistent update on your creditworthiness once every four months.

Which credit bureau’s report should you use? Trick question. The answer is all three.

How and When to Get Your Credit Score

There are three main ways to check your credit score for free:

  • Request your credit score from your bank
  • Get your credit score through your credit card issuer
  • Sign up for a free online credit service

The list of banks and credit card companies who offer free access to a credit score grows every day as demand for online financial services increases. If you’re not yet eligible, or don't want to sign up for a service, you can also estimate your credit score using our calculator.

Checking your credit score regularly is the best way to see how your credit changes with each financial decision you make.

Your credit score and credit report are different, which is something that many people find confusing. Surveys indicate that while about half of Americans know that there’s a difference between a credit score and a credit report, most don’t really know what that difference is.

Your credit score is a number grade that shows how positive or negative the information on your credit report is. The most common credit score in use is the FICO score, which is calculated on a scale of 300 to 850 using information from all three major credit reporting agencies. Like your credit report, checking your credit score doesn’t have to cost you anything.

FICO credit score ranges: 300-500 = Poor; 580-669 = Fair; 670-739 = Good; 740-799 = Very Good; 800-850 = Exceptional

In order to file a credit dispute, you need to write a letter to the credit agency outlining the mistake and offering proof that the correction you’re requesting is accurate. You should also include a printed copy of your credit report with the error circled. For a detailed description of what should be included in a dispute letter, you can reference our step-by-step guide to disputing your credit report.

Filing a credit dispute won't hurt your credit.

You can dispute any inaccurate information you find on your credit report. This includes:

  • Negative incidents that have remained on the report longer than they should
  • Accounts that are not yours
  • Payments made on time but reported late
  • Inaccurate identifying information (either for you or your creditor)
  • Incorrect account status (account listed as open when it’s actually closed, or others)

If you do find an error on your credit report, the Fair Credit Reporting Act states you have a right to dispute inaccuracies and receive a response from the credit agency within 30 to 45 days.

How to Monitor Your Credit

You can monitor your credit on your own for free by ordering your annual reports from the big three bureaus throughout the year and keeping an eye out for any mistakes or changes. You can also purchase a credit monitoring service that will keep an eye on your credit reports for you.

Credit monitoring is a service that sends a fraud alert whenever a change is made to any of your credit reports and allows you to proactively issue a credit freeze. If you’ve been affected by a data breach, you may be eligible for free monitoring services, but otherwise monitoring costs around $30 per month.

Even if you’re comfortable without credit monitoring, you should consider enrolling if you’ve already been a victim of identity theft. If you do opt for a credit monitoring service, be sure that you choose one that draws credit information from all three of the major credit reporting agencies to get the most detail.

Get Familiar With the Credit Bureaus

Credit reporting agencies can loom large and ominous in your financial landscape, but they can also provide valuable insight into the details of your credit health. With some time and the right tools, you can become an expert on how to understand and improve your credit.

If you don’t feel confident about learning on your own, you can hire a professional who’s dedicated to helping you establish a healthy relationship with your credit. Credit report consultants can set up a credit improvement plan that not only helps you stay up-to-date on your credit record, but can also improve your financial health and potentially raise your score.

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