Where Credit Scores Come From: An Overview Of The 3 Credit Bureaus
Your credit score is important in America, but where does it come from? We’ll give you an overview of the 3 credit bureaus.
If you have a credit score, the credit bureaus have a file on you. We’ll explain what a credit bureau is, how the credit bureaus work, where credit bureaus get their information, and how the credit bureaus are regulated.
What is a credit bureau?
A credit bureau is a business that researches and collects credit information on individuals (and in the cases of Experian and Equifax, on businesses as well). They compile this information into a credit file and a credit score. This information is sold to creditors like banks and credit card companies, landlords, and in some cases, employers so they can use it to decide to extend loans, credit, leases, and jobs to applicants.
What are the three main credit bureaus?
There are several credit bureaus, but the three main ones are Experian, Equifax, and TransUnion.
Equifax: Headquartered in Atlanta, GA, and founded in 1899.
TransUnion: Headquartered in Chicago, IL, and founded in 1968.
Experian: Headquartered in Costa Mesa, CA, and founded in 1996.
How do credit bureaus work?
Credit bureaus are warehouses for consumer credit data, and they collect information about your borrowing and payment history. How much money have you borrowed, how much credit do you have, how much of that credit are you using, do you pay your bills on time, and if not, how late are your payments? Have you ever filed for bankruptcy? Do you have accounts that have been sent to collection agencies, do you have liens against you, and do you have any financial judgments against you?
This information is compiled into your credit report and transformed into your credit score. Each bureau has its own proprietary formula it uses to calculate credit scores. That’s why you might see a score of 687 in one place and 695 in another. Generally though even if your score varies, it will still always fall into the Bad, Fair, Good, or Excellent.
The credit bureaus sell this information to would-be creditors to help them determine if you’re a good or bad credit risk.
The credit bureaus though have no hand in whether or not you’re approved for a loan, a credit card, an apartment, or a job. They simply compile, package, and sell this information to interested parties.
Where credit bureaus get their information
The bulk of data collected by credit bureaus comes from lenders. Banks and credit card companies report your accounts and payment history to the bureaus. Not all lenders report this data, but most do. If you’re trying to build or improve your credit, it’s best to work with lenders who report to the bureaus.
Some financial information is a matter of public record, and anyone can view it; filing bankruptcy, for example. Lenders could look this information up themselves, but it’s easier to pay a credit bureau for it.
In some cases, utility companies, cell phone service providers, and landlords report information to credit bureaus.
The three main credit bureaus and the entire credit reporting industry are federally regulated under the Fair Credit Reporting Act (FCRA). The FCRA requires that consumer credit information be reported fairly, timely, and accurately. If you are denied credit or the cost of credit is raised (i.e., your interest rate changes), the creditor must provide you with the name and address of the credit bureau it got your report from.
Obtaining credit bureau information
Under the FCRA, you have the right to receive a free copy of your credit report once per year from each of the credit bureaus. You can request your reports here. It’s a good idea to review your reports periodically, especially if you’re trying to build or improve your credit. Each report will have differences, and some of the information could be wrong.
Perhaps someone entered your name with a minor misspelling. That could mean someone with that spelling’s information is on your report. You could have paid off a loan or a credit card, but for whatever reason, the creditor didn’t report that information to the credit bureau.
If you find errors, you can point them out and provide evidence that the information isn’t correct. The credit bureaus are then legally obligated under the FCRA to correct the information.
Take control of your credit with Upwardli
Upwardli was created to help new immigrants navigate the American personal finance system, including assisting them to build and improve their credit. But we can help anyone do the same! If you want to take control of your credit, let Upwardli help!
