You’ve undoubtedly heard of all three of the major credit reporting agencies: TransUnion, Equifax and Experian. But, if you’re like most people, you have only a general idea of who these companies are, what they do, and why it matters to you.
Here are a few reasons you should educate yourself about credit reporting:
- Many Americans have errors on their credit reports, and those errors can cost money
- Your credit history and credit score can differ from credit bureau to credit bureau
- Monitoring your credit report helps protect you against identity theft
What is a Credit Reporting Agency?
Consumer credit reporting agencies gather information about people’s credit histories and compile that information into reports. While this may sound like a governmental function, credit reporting agencies are private companies. They make money primarily by selling credit reports and scores to creditors and others who need information about a consumer’s creditworthiness. Others who routinely purchase credit reports include apartment managers, car insurance companies, and certain prospective employers.
Credit scores are calculated using a variety of factors, including:
- The percentage of available credit you are currently using
- The age of your oldest account
- Your past payment history
- Collection accounts and public records
Many people assume that their credit report and credit score is the same regardless of which credit reporting agency a creditor uses. In theory, that makes sense. After all, your credit utilization is what it is. The same is true for your payment history, age of accounts and so on. Still, credit reports and credit scores can vary significantly from one credit bureau to the next.
One reason is that the formula applied may be slightly different. Or, in the case of “specialty” reports designed for a certain type of credit, the formula may differ significantly. Another is that the three credit bureaus gather information differently, which means that an item appearing on your TransUnion credit report may not appear on your Equifax or Experian report (or vice versa).
That’s why it’s important to monitor all three credit reports, not just look at one and assume that if it’s accurate, the others will be, too. If you’re preparing to apply for an auto loan, mortgage, or hoping to make another big-ticket credit purchase, it’s also important to know that the credit provider will typically only be looking at one of these reports. That means that in some circumstances, whether you qualify for credit or for a lower interest rate will depend on which report the creditor uses.
Monitoring Your Credit Reports
Errors and misreporting can be costly, or may even mean that you can’t get the financing you need. So, it’s important to check your credit reports with all three bureaus and dispute any inaccuracies.
Federal law requires each of the three major credit bureaus to provide you with one free credit report each year. Don’t be fooled! There are many companies that want to sell you credit reports you could obtain for free, and others that require you to buy something–or make it appear that you have to buy something–in order to get your free credit report. You are entitled to access your credit report with each bureau once a year without buying anything at all.
You can make that request directly to TransUnion, Equifax and Experian, or you can request all three through AnnualCreditReport.com.
You don’t have a right to access your credit score for free, but you won’t need it to monitor the accuracy of your reports. And, since making up-to-date information available is much easier today, you may have options for accessing free credit reports and credit scores on a more regular basis.
Some examples include:
- Credit bureaus making more regular access available to those who register for a free membership
- Credit card companies and other credit providers including frequently-updated credit reports and scores as a benefit
- Free third-party services like CreditKarma
Protecting Your Credit
Since your credit reports and credit scores can impact many areas of your life, it’s important to ensure that you aren’t being hurt by outdated or inaccurate information. Ideally, you’ll monitor your credit reports, note any inaccuracies, dispute those inaccuracies, and the reports will be corrected. Unfortunately, it doesn’t always work that way. Credit reporting agencies and those who furnish information to them don’t always fulfill their obligation to investigate and make corrections. And, some dishonest debt collectors re-report inaccurate or outdated information to try to pressure you into making payment.
Fortunately, the Fair Credit Reporting Act (FCRA) protects consumers when credit reporting agencies and credit furnishers violate the law. One of the first things a DebtCleanse attorney will do is look for violations of the FCRA and other consumer protection statutes. These violations can provide leverage to resolve outstanding debts, and in some cases may even mean money in your pocket.
