You’ve probably heard of the Big 3 credit reporting bureaus -- Equifax, Experian, and TransUnion – but you may wonder why it is that one person’s credit score can vary among these three.
The good news is that there’s a lot less variation than there might have been decades ago, before the U.S. Congress passed the Fair Credit Reporting Act in 1970, and gave credit bureaus specific rules about how they can collect, share, and disclose consumer information. Still, it’s important to remember that the credit bureaus are for-profit companies competing for business; they are not non-profit organizations and they are not part of the government. Thus, while each of the three major bureaus will typically have much of the same data, they may handle it differently and that can affect your score.
Calculating Credit Scores
Most people know that a high credit score is better than a low credit score, but what is the best possible score? It depends on which credit bureau’s report you’re reading. Equifax and TransUnion have a 300 to 850 scale, while Experian’s scale is 330 to 830. Also, each bureau uses its own method for calculating scores, which can lead to variation among scores. Plus, their scoring methods can change over time.
Presenting Information Differently
One of the reasons a lender may prefer one credit reporting bureau over another is the way they present information about prospective borrowers. For example, Equifax lists open and closed accounts separately (while the other two list all accounts together alphabetically), making it easy to determine one’s debt load at-a-glance. TransUnion offers a more detailed employment section, showing both title and how long you’ve been with your current employer, which can be especially useful to mortgage lenders. Meanwhile, Experian includes on-time rent payments reported through its RentBureau.
Other Reasons Scores Vary
The credit reporting bureaus rely on information they receive from creditors, collection agencies, and court records, and they may not all get the same information about you at the same time. So if, for example, Experian receives information about a new loan, but TransUnion doesn’t receive that same information until a few days later, your Experian score might be higher simply because TransUnion hasn’t factored the latest loan into their score. This is one of the reasons it’s so important to regularly check your credit reports with each of the three major credit reporting bureaus. Different information, especially if it’s incorrect, can harm your chances for getting the best possible rates and terms when you’re buying a home or a car.
By law, you’re entitled to a free copy of your credit report each year from Equifax, TransUnion, and Experian. You might decide to get all three at once, in order to compare them, or space them out throughout the year to keep regular tabs on your credit score status.
Whichever you decide, be sure to request your reports by either calling 877-322-8228 or going online since these are the only sources authorized to provide your free annual credit reports.
To learn more about credit reports and how to improve your credit rating, contact us or visit BALANCE, a financial counseling resource provided to credit union member-owners.