Written by: Andrew Allen
Edited by: Lillian Guevara-Castro
Reviewed by: Jon McDonald
Bureau isn’t a word I hear or use all the time, but some bureaus have a big impact on my daily life — whether I realize it or not. One of the most important bureaus, the Federal Bureau of Investigation (FBI), arrests criminals and follows leads to help protect all Americans.
But other bureaus, credit bureaus, have a different impact, as they investigate your financial history to protect lenders from risky borrowers.
Credit bureaus research and compile information about your credit, including your history of managing your loans and credit card accounts. They use this data, and credit scoring models, to calculate credit scores for individuals. So, you want to stay on their good side.
Credit bureaus compile your credit reports, which contain in-depth details of your borrowing and repayment history.
Creditors, such as loan providers and credit card issuers, use information from the credit bureaus to help them decide whether to lend to consumers.
The three major credit bureaus in the U.S. are Equifax, Experian, and TransUnion. In this guide, I’ll cover the role of credit bureaus and how they can impact your access to credit.
The Role of Credit Bureaus
Credit bureaus offer information to lenders, including banks, credit unions, and credit card issuers, so they can evaluate your credit history. You want to manage your credit well so the bureaus know you’re responsible.
Credit bureaus don’t make lending decisions themselves, but they offer a valuable service to help creditors assess your creditworthiness.
Data Collection
If you’ve ever noticed that the credit bureaus report on your credit differently, you’re not alone. Credit bureaus gather information about you from various outlets, and each bureau may use slightly different sources when researching your credit.
Many companies, including credit card issuers, debt collection agencies, and mortgage lenders, provide information to credit bureaus about consumer credit. Companies share this data to create a record of your debts and payments and to enable credit bureaus to calculate credit scores (more on that later).
Credit bureaus also use information from public sources. They can access information on bankruptcy filings, court judgments, liens, and other public records to learn about your overall credit activity. So if you have any of those records, know that a credit bureau may find them.
Credit Reporting
If you’ve never reviewed your credit report before, you may not know what to expect — I know I didn’t.
Credit reports typically include the following:
- Personal Information: Credit reports disclose personally identifiable information, such as your name, address, date of birth, and Social Security number.
- Credit Accounts: The credit bureaus include credit account balances, payment histories, and other details about the types of credit accounts a consumer owns or has owned in credit reports.
- Public Records: Credit reports list the details of any bankruptcies, civil suits and judgments, and foreclosures you may have experienced.
- Credit Inquiries: The credit bureaus list all the recent requests companies and other entities have made to access your credit report. Lenders and borrowers can access information about both hard and soft credit inquiries within a credit report.
Credit reports contain information about your credit history and the status of any current credit accounts you own. Credit bureaus offer credit reports to lenders and other organizations who require a record of your history with credit and current credit activity.
The credit bureaus each use similar information to compile credit reports, though differences may exist as we discussed earlier.
Credit Score Calculation
Credit reports contain a lot of information about your credit history, but they can take a while to read and understand. They’re not the most exciting read either, so maybe save them for a time when you’re feeling well-rested and alert. If you’re looking for a quick indicator of your credit standing, you might want to check out your credit score.
Credit bureaus use information contained in credit reports to calculate credit scores, but they don’t include your credit score within your credit report. Equifax, Experian, and TransUnion may use different calculations to determine your credit score.
We’ve found that the FICO score, developed by the Fair Isaac Corporation, is the most commonly used credit score. The credit bureaus use the information they have on file to calculate a version of a consumer’s FICO score.
FICO scores consist of the following factors:
- Payment History: Accounting for the most significant portion of your credit score, 35%, payment history represents whether you’ve missed the due dates of any payments and how late you were on overdue payments.
- Amounts Owed: Making a 30% contribution to your credit score, amounts owed measures your credit utilization, which is the amount of credit you’ve used compared to the amount of credit available to you.
- Length of Credit History: The length of time you’ve owned credit products accounts for 15% of your credit score. Consumers who’ve kept their credit accounts in good standing for an extended period of time generally fare better in this category.
- Credit Mix: The mix of credit products you own, including auto loans, mortgages, and credit cards, accounts for 10% of your credit score.
- New Credit: This category contributes 10% to your credit score and measures the number of new credit products you’ve applied for. A significant number of new credit applications can harm your credit score.
The credit bureaus created the VantageScore to bring uniformity to credit scores. Though similar to FICO scores, VantageScores place different weights on credit factors.
| Factor | Weight |
|---|---|
| Payment History | 41% |
| Age/Mix of Credit | 20% |
| Credit Utilization | 20% |
| Recent Credit | 11% |
| Balances | 6% |
| Available Credit | 2% |
The most recent version of the score, VantageScore 4.0, assigns the above weights to credit scores.
Equifax, Experian, and TransUnion
Though the three major credit bureaus in the U.S. offer similar services, a closer look shows some differences between them. In addition to compiling credit reports, here are a few distinguishing features of Equifax, Experian, and TransUnion.
- Equifax: In addition to compiling credit reports and calculating credit scores, Equifax provides numerous other services to consumers and businesses. The company’s identity protection services can help you safeguard your information and combat fraud.
- Experian: Experian is most widely known for its contributions to credit reporting, but the company also provides services that can help you manage your finances. The FDIC insures its digital checking account, which you can use to help you build your credit.
- TransUnion: If you’re like me, you may have wondered how specific financial actions can impact your credit score. TransUnion offers a solution. The company’s credit score simulator removes some of the mystique surrounding credit score calculations by allowing you to enter information and learn how financial management can impact your credit scores.
I encourage you to explore each credit bureau’s website deeper to see for yourself what they have to offer.
How Your Credit Reports Affect You
Just like SAT scores can be a determining factor in where you attend college, your credit reports and scores can significantly impact your financial life. Non-financial entities may also access your credit information to better understand your ability to manage credit.
Credit Card and Loan Approval
If lenders offered financing to anyone who applied without assessing creditworthiness, they would quickly find themselves with a portfolio of overdue payments.
Credit card issuers and loan providers review your credit reports to determine the likelihood you’ll pay back the funds you borrow.
Consumers with excellent credit scores can access more lending products at better terms than those with bad credit.
Employment and Rental Prospects
Another reason to improve and maintain a positive credit profile is that others outside the financial sector use it to learn about you. Employers often conduct background checks on job candidates before making an offer for employment. They may also review a job applicant’s credit report to confirm their identity.
How you manage your credit over time can indicate to an employer whether you can handle the specific duties of a position. So if you’re in the market for a new job, make sure your credit reports are accurate.
Credit reports can also impact your housing opportunities. Landlords want tenants who make their rent payments on time each month. By reviewing your credit reports, landlords can learn about your history with credit and your likelihood of making future rent payments on time.
Credit bureaus also offer credit screening products designed for property owners looking to rent or lease homes and apartments.
Interest Rates and Terms
Credit scores range from a low of approximately 300 to a high of 850. Lenders take on more risk when they loan money to people with bad credit. To compensate them for taking on this risk, lenders typically charge higher interest rates to those with bad credit than their counterparts with good or excellent credit.
The following ranges apply to FICO credit scores:
- Excellent credit scores range from 800 to 850. Borrowers in this category are the least risky to lenders. Well done if your credit score is in this range!
- Very Good credit scores range from 740 to 799.
- Good credit scores range from 670 to 739 and represent a moderate risk to lenders.
- Fair credit scores range from 580 to 669 and indicate an increased risk to lenders.
- Poor credit scores range from 300 to 579. Consumers with poor credit are the riskiest borrowers loan providers can lend to.
If you’ve ever been offered a credit product with a high interest rate, it may have something to do with your credit score. Credit score ranges fall into the five categories above based on the perceived risk a borrower’s score represents to a lender.
How to Maintain Good Standing with Credit Bureaus
Maintaining good standing in the eyes of credit bureaus can help you in many facets of life. Here are some tips to keep in mind that can help you build or improve your credit profile.
Make Timely Payments
Making payments on time is essential if you want to keep a positive credit report. If you always make payments on or before their due dates, then you’ve taken a big step toward bolstering your credit.
You can use online tools to automate payments and ensure you don’t miss a due date. We think it’s a good practice to set reminders to alert you when payments are due.
Keep Credit Utilization Low
If you want to lower your credit utilization ratio, you can follow a few strategies to achieve that goal. Making more than the minimum payments on credit cards can reduce your total credit used, which can also significantly lower your credit utilization ratio over time.
You could open a new credit account to increase your overall limit, but you need to avoid the temptation to spend on a new card. Beware of closing old credit cards because that can decrease the total amount of credit available to you and impact your credit utilization ratio.
Monitor Your Credit Report Regularly
The best way to stay on top of changes to your credit is to monitor your credit reports consistently. Fortunately, you can access your credit reports for free as often as each week at AnnualCreditReport.com.
Many companies offer credit monitoring services that alert you to changes in your credit. Early detection of credit issues can lead to quicker resolutions of issues that may negatively affect your credit report and score.
Credit Bureaus Play a Significant Role in Financing
Credit bureaus produce credit reports and calculate credit scores that can impact your ability to access credit products at favorable rates. We hope you’ve gained a better understanding of how credit bureaus operate and how you can check that their work is accurate.
Taking steps to improve your credit can open doors to financing opportunities and convey responsibility to employers and landlords. We advise you to check your credit reports from each bureau often and make a plan to keep the positive entries rolling in.
