By Karen Lynch | American Express Credit Intel Freelance Contributor
6 Min Read | September 22, 2020 in Credit Score
Credit reporting agencies certainly know a lot about you, but what do you know about them? It’s a good idea to understand who these companies are, what they are doing with your personal information, and how to work with them.
“Credit reports play an increasingly important role in the lives of Americans,” according to the Consumer Financial Protection Bureau (CFPB). By tracking your financial history, credit reporting agencies provide the basis for your credit score, which determines whether (and for how much) you can get a mortgage, auto loan, credit card, student loan, apartment rental, insurance policy, or even a job, according to the CFPB.1 For more information, read “What Is a Credit Report and Why is it Important?”
In the U.S., most people think of the “Big Three” credit reporting agencies – Equifax, Experian, and TransUnion – though there are also many other smaller ones.
Credit reporting is a multibillion-dollar industry: In 2018, Equifax reported $3.4 billion in revenue,2 Experian had $4.6 billion,3 and TransUnion made $2.3 billion.4 In addition, the CFPB lists dozens of smaller agencies specializing in such areas as checking account verification, and employment or talent screening.5 All told, credit reporting agencies have files on nearly 90% of American adults, according to the CFPB.6
Credit reporting agencies, sometimes known as credit bureaus, collect data from multiple sources to assess your creditworthiness – basically, whether you tend to pay what you owe. They combine that data into credit reports they sell to companies you want to do business with.
The types of information collected by credit reporting agencies include:
In a sense, your information goes full circle. Banks and other companies provide your credit and other personal information to credit reporting agencies for free. The agencies combine the information with data from other sources, such as credit card companies, debt collectors, and public records. And then many of the same companies – the so-called “data furnishers” – turn around and buy back the agencies’ more comprehensive credit reports.
Like everything human, of course, this process isn’t perfect …
Given the possibility for mistakes, identity theft, and other issues at each step in the process, both the agencies and the companies that furnish information are subject to standards and regulatory oversight at the state and national levels.
Still, credit reporting generated the most complaints to the CFPB in 2018, followed by debt collection and mortgage issues.7 The Federal Deposit Insurance Corporation has cited errors such as outdated information, missing loan payments, incorrect Social Security numbers, and reporting on individuals with similar names and addresses.8 One of the Big Three suffered a major data breach affecting millions in 2017.
To combat these and other problems, lawmakers and regulators have continued to update and enforce standards in recent years. Meanwhile, legislation has been introduced in Congress to further improve the transparency, accuracy, and security of credit reporting agencies.
The businesses of the three major credit reporting agencies are essentially the same. Historically, the three were differentiated by region. As the century-old credit reporting industry consolidated, Equifax rose to prominence in the South and East, Experian in the West, and TransUnion in the Central U.S.9 Some of that legacy endures, but all are now national – and even do business overseas.
Beyond providing lenders and other companies with credit reports, the credit reporting agencies also make money by selling individuals credit monitoring, identity theft protection, and fraud protection, as well as copies of their own credit reports (though one copy a year is free, by law). The agencies also sell personal information to companies that target you with offers. Yet another revenue stream comes from packaging your information with data analytics.10
Despite similarities, what stands out for many people are the differences in each agency’s credit score for the same person – even when using a standardized scoring model such as FICO. An Experian blog explained that scores vary because of the way the agencies source, schedule, and calculate information.11 For example, not all credit agencies source data from the same companies. Updates may not all be made at the same time. And each agency customizes its computer models. For a deeper understanding of credit scores, read “What is a Credit Score and How is it Defined?”
For many people, credit reporting agencies represent a tradeoff of personal information for financial access, according to the Urban Institute. People without a credit score have limited financial services options – often with much higher interest rates.12
The CFPB advises people to request their three free credit reports once a year and provides a list of common errors to review, such as closed accounts that are reported as open, accounts with incorrect credit limits, and others. The CFPB also provides detailed instructions and sample letters to help you dispute any errors with both the credit reporting agency and the company that provided incorrect information.13 Or, read “How to Dispute Your Credit Report at All 3 Bureaus.”
The three major credit reporting agencies – Equifax, Experian, and TransUnion – play a critical role in determining people’s access to financial services. Knowing who they are and how to work with them can help you maintain your financial wellbeing.
1 Key Dimensions and Processes in the U.S. Credit Reporting System, Consumer Financial Protection Bureau
2 “Equifax Releases Fourth Quarter 2018 Results,” Equifax
3 “Key Financial Data,” Experian
5 “List of Consumer Reporting Companies,” Consumer Financial Protection Bureau
6 Consumer Credit Reporting, Credit Bureaus, Credit Scoring, and Related Policy Issues, Congressional Research Service
7 Consumer Response Annual Report, Consumer Financial Protection Bureau
8 “New Standards for Credit Report Accuracy May Help Consumers,” Federal Deposit Insurance Corporation
9 “Do you know that there are three credit reporting agencies?,” TransUnion
10 “How Credit Bureaus Make Money,” Investopedia
12 “What is the Cost of Poor Credit?,” Urban Institute
13 “Common Errors People Find on their Credit Report—And How to Get Them Fixed,” Consumer Financial Protection Bureau