There are three major credit bureaus in the U.S. – EXPERIAN, EQUIFAX and TRANSUNION – that collect and maintain financial information on consumers to help develop reports about the person’s spending and payment habits.

These credit reports are used by banks, card companies and other lenders to assess the quality of a person’s credit worthiness and help determine whether to grant them a loan. The three major credit bureaus have files on 200 million consumers. These are for-profit companies that generated nearly $9 billion in revenue in 2014. They are not affiliated with the U.S. government or with any educational entity. They provide a service to banks, lenders and individuals who pay them fees.

Each borrower presents a unique set of risks to any lender and credit bureaus help lenders assess those risks. Credit bureaus combine a detailed history of a borrower’s transactions and payments with analytics on the way the individual deals with certain types of debt. Knowing a person’s borrowing habits, credit history and estimated ability to pay bills helps lenders decide whether to lend them money, how much to lend and what interest rate to charge when loan terms are negotiated.

Every time you pay your credit card bill, mortgage, auto loan or insurance premium, that information is forwarded by your creditor to the three credit bureaus and other specialty bureaus that compile similar data.

If you miss a monthly payment, that information is also passed along to the credit agencies. This is how they compile a history of your financial transactions and keep track of your short-term and long-term success or failure to meet those obligations in a timely manner.

Credit Bureaus and Credit Scores

Credit bureaus also calculate your credit scorewhich affects many aspects of your life. A credit score is the result of a mathematical formula based upon the contents of your credit report. The score is an effort to quantify your projected reliability in paying back car loans, credit card balances, mortgages and other lines of credit.

The most widely used credit score is the FICO score, created by the Fair Isaac Corporation in 1989. The FICO score is a three-digit number that ranges from 300 to 850. The higher the number, the better your credit rating and the better terms you can expect when negotiating a line credit or a loan.

Another credit score is the VantageScore. It has been in use since 2006 and recently revised its scoring range to between 300 and 850, the same as FICO. Like FICO, the VantageScore rewards better credit risks with higher scores.

Both the FICO and VantageScore assessments analyze several factors from your credit history, including:
  • On-time payment. This is, by far, the most positive component in your score.
  • Use of available credit. The lower the percentage of available credit you use, the better your score.
  • Length of credit history. Experience (using and paying), counts.
  • Mix of accounts. Both scores like to see payment on mortgage, student loans, revolving credit and auto loans to see that you can handle various forms of credit.
  • The number and types of accounts you have opened recently.

Depending on use of credit and payment schedule, your credit score could change regularly, sometimes on a monthly basis.

Who Requests Credit Reports and Scores?

A surprising number of businesses are interested in your credit report and score and not just for financial purposes. Good credit scores are viewed as indicators of reliable and responsible behavior.

When a business does a credit check, they can either make a “soft pull” or a “hard pull” on your credit report. “Soft pulls” are involuntary inquiries during a background check and they don’t affect your credit score. “Hard pulls” are considered voluntary inquiries, which is when you apply for a credit card, a mortgage or an auto loan.

Unauthorized hard pulls by a business can negatively impact your credit score, but you can ask the business or credit bureaus to remove it because the inquiries were made without your consent.

The credit card industry obviously has the most interest in your credit report because it supplies a temporary loan each time you use one of its cards. Other obvious businesses interested in your score — and thus your ability to repay loans — would include mortgage brokers, auto dealerships and banks. If you give them permission, companies that protect against identity theft can also check your credit report.

Some of the not-so-obvious businesses include insurance companies, employers, landlords, utility companies, licensing agencies, collection agencies and child support enforcement agencies. Each of them can file negative reports on you with credit bureaus if you fail to make timely payments on your accounts.

A survey dating to 2001 said that 92% of insurance companies use credit scores in determining rates. The insurance industry says there is statistical proof of a direct correlation between drivers with low credit scores and frequency and severity of accidents, as well as policy cancellations because of non-payment.

Employers can pull a credit report on a prospective employee, but only if they receive written permission. The employer must make the employee aware that information on the credit report is being used to evaluate them. If the employee refuses to permit the employer to pull a credit report, the employer may deny them the job. Employers use the information to help determine the trustworthiness of an individual, which would be important in jobs at banks, jewelry stores, law enforcement agencies and some government agencies.

Landlords use soft pulls of credit reports to help determine the reliability of a tenant paying rent and how much deposit they should require. Deposits also are an issue for utility companies, which may or may not require one based on information gained from a credit report.

If you owe a debt, collection agencies may request a credit report for the purposes of collecting that debt. A record of their inquiry is shared with other lenders, which is not a good thing.

Credit bureaus also sell personal information to qualified lenders trying to target loan offers to qualified prospects. These are called “prescreens” or “trigger lists” and they attract a lot of negative publicity because they are considered an invasion of privacy.

However, they are explicitly allowed under the FCRA, which allows this because of the tangible benefit (firm offer of credit) that consumers receive. Consumers may opt out of the “prescreen” or “trigger lists” if they do not want the offers.

Getting Your Credit Reports from a Credit Bureau

Just as it is important for potential lenders to review your credit report before deciding to loan you money or grant you a line of credit, it’s important for you to stay on top of your own credit reports and credit scores. You will want to correct any mistakes or errors and verify that the report is an accurate representation of your credit history.

The Fair and Accurate Credit Transaction Act (FACTA) entitles every American to one free credit report – called a file disclosure – from each of the three major credit bureaus, every 12 months.

To obtain a report, you can visit, which will direct you to the three credit bureaus. Your report is free.

Beware of look-alike sites that offer your report in return for purchasing another product or service. If you wish to know your credit score, you need to contact one of the big three bureaus directly and pay a small fee.

There are several online sites and some credit card companies that provide a free credit score. The free score usually is not the same one seen by lenders, but rather an “educational score,” which means close, but not exactly what lenders see.

This is why it’s important that you check your credit reports and credit scores periodically. Any incorrect entry can have negative and even severe consequences.

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