You’ve probably heard that your credit is extremely important. However, in order to learn where you stand, you’ve got to know where to start, which is logically with the consumer reporting agencies (CRAs). These agencies, also known as the credit bureaus, compile all your credit information. There are many specialty credit reporting agencies out there, but three credit bureaus — Experian, TransUnion and Equifax — are the go-to agencies for lenders looking to pull your traditional credit reports.
Still, there’s a lot of confusion when it comes to what the major credit bureaus actually do. What kind of information do they collect? Where does that information end up? Do they create credit scores or credit reports? And what’s the difference? Let’s break it down.
What Do the Major Credit Reporting Agencies Do?
The short answer is that these agencies compile details about your credit history so potential lenders can see what type of risk they’d be taking in giving you a new credit card or loan.
The major credit bureaus are all for-profit companies and are not owned by the government. They have reporting relationships with banks, credit card issuers, lenders and other financial organizations and compile your credit history in what are referred to as credit reports.
What Kind of Information Do Credit Bureaus Collect?
Credit reports include information about your existing credit accounts as well your payment history from a variety of financial institutions, including credit card companies, banks, mortgage companies and other lenders you may have worked with at some point.
Other businesses, like telephone and utility companies, may also report information to credit bureaus, but non-lending organizations like these tend to only report late payments and other negative information (like if an account is sent to collections, for example).
The major credit reporting agencies all collect a lot of information, but there are five key factors listed on your credit reports that are generally used to determine your creditworthiness when it comes time to get a loan or additional line of credit. These factors are: your payment history, the types of accounts in your credit file, your amount of debt, how long you’ve had credit and the number of hard inquiries on your credit file.
What Is Done With This Information?
Once the major credit reporting agencies have collected all the aforementioned information, compiled your credit history and generated a credit report, they sell that information back to the lenders, so those financial institutions, in turn, can determine your creditworthiness. Based on that information, lenders can decide whether or not to lend to you. If they decide you’re someone they want to issue a credit card to or offer a loan to, the information supplied by the credit bureaus will be used to help determine what your interest rate will be.
How Long Do Credit Bureaus Keep My Information?
Personal information — like your name, address, etc. — as well as positive financial information — like a strong payment history — can remain on your credit reports indefinitely.
The credit bureaus compile more troubling information as well, as this gives insight into how risky of a potential borrower you are. Most of these details can remain on your credit reports for seven years, but that timeline can vary depending on the item.
Here’s a breakdown on how long the some of the negative information collected by the credit bureaus will likely stay on your credit reports.
- Bankruptcy: Ten years from the date of filing for Chapter 7 filings, seven years for Chapter 13 filings and seven years for each record marked as “Included in BK”
- Charge-Offs (when a creditor or lender writes off the balance of a delinquent debt, no longer expecting it to be repaid): Seven years
- Closed Accounts: Seven years if the account was paid late, no expiration date if the account was always paid on time
- Collection Accounts: Seven years from the last late payment on the original account
- Inquiries: Two years
- Late Payments: Seven years from the date of the late payment
- Judgments: Seven years from the filing date if paid; longer if unpaid
- Tax Liens: Fifteen or more years if left unpaid, seven years from the date the lien is paid
Do All Three Credit Bureaus Have the Same Information?
The three main credit bureaus all operate independently of each other, so they don’t share information or communicate with each other. Because of this, your credit file may be slightly different from each of the major credit bureaus — Experian, Equifax and TransUnion. This is why it’s a good idea to review each of your reports from the big three, so you can verify everything is accurate.
If you find something is inaccurate on any of your reports, you will want to dispute it, which you can do on your own or you can get help from a credit repair expert. (This guide can help you learn how to dispute an error on your credit reports.) It’s important to note that if an error is appearing on multiple reports, you’ll need to file a separate dispute with each bureau reporting the misinformation. You can file disputes with each of the major credit reporting agencies via their websites or by mail.
How Do You Get a Copy of Your Credit Reports?
Federal law entitles you to one free credit report from each bureau every twelve months. You can request your free annual credit reports from Equifax, Experian and TransUnion at AnnualCreditReport.com. If you need to get an additional credit report during the year, you can purchase one directly from each of the major credit bureaus.
In addition, you can see a free snapshot of your credit report, updated every 14 days, on Credit.com. By using this, you’ll get insight into how you’re doing in the five key areas focused on in your credit reports we mentioned earlier. You’ll also see two of your credit scores for free. Not only that, but you’ll get a personalized step-by-step action plan to help you know where to focus on improving to achieve your goals.
Understanding the Difference Between Credit Reports & Credit Scores
Now that you have a bit more insight into what the credit bureaus collect, and how they use this information, you may be wondering what the difference is between the credit reports they issue and the credit scores you hear so much about.
Basically, the information in your credit reports is used to generate your three-digit credit scores, which are a numerical representation of your creditworthiness. Because there are three major credit reporting agencies, and the information collected by them can vary, your credit scores may also vary depending on what bureau a lender is using to ascertain your credit history.
Beyond that, there are many different credit scoring models or formulas, which change from lender to lender. In fact, you’ve probably heard of FICO scores before — but you don’t have just one FICO score — you have dozens.
It’s a good idea to review your credit reports for the finer details influencing your credit scores, as well as to monitor your scores for any sudden changes, as this can be a sign of identity theft. Knowing your scores will help you have an idea of what types of terms and conditions you may qualify for on any lines of credit or loans.
Gerri Detweiler also contributed to this article.