Credit Reporting Agencies

While many companies may throw around the term "credit report," there are only three companies in the United States that compile and publish credit information on consumers - TransUnion, Equifax and Experian.  These three credit reporting agencies are used by creditors to help figure out the risk they are taking by lending you money.

Credit Reports and Credit Scores

Now these three agencies are in the business of making money for their stakeholders and they do this in many different ways. Here we are going to talk about one very important way they make money and how it can affect your lifestyle - credit scoring.  We're also going to talk about credit reports because the information in the report is directly related to credit scoring.

Credit Reports

One of the nice things about the credit industry is that the agencies all take very similar approaches to putting together your credit report.  That is to say, each report from each of these three agencies will pretty much contain the same information.

• Consumer / Personal Information - your name, address and employer.
• Credit Information - outstanding mortgages, loans, and lines of credit carrying balances at banks.
• Account History - information on your payment patterns and collections activity as reported by agency partners.
• Public Records Information - information available to the general public due to the involvement of a court proceeding.  This can include bankruptcy filings, claims and monetary judgments against you.
• Inquiry Information - companies that have recently requested a copy of your credit report.
• Personal Statements - this is where you can provide a statement concerning the information contained in your credit report.

While all of the information contained in your credit report should be accurate, you need to pay special attention to the account history section of the report.  Credit agencies have relationships with creditors such as utilities and issuers of credit cards.  It is these relationships that help them gather enough information to compile an accurate credit report.

The account history information will vary by agency, but each has forged enough relationships with creditors to provide an overview of your payment patterns.  Do you pay on time?  Do you carry a high balance on your credit cards?  Using this account history information each agency is able to generate an individual credit score.

Credit Scores

As mentioned earlier, credit scoring is one very important way these three credit reporting agencies make money.  By examining the information that appears on your report, the agency can develop a credit score that gives future creditors a feel for the risk associated with lending you credit.  Each credit agencies has developed their own proprietary calculation for summarizing all of their credit information into a single score.  The score is summarized as a numerical value, usually on a 1,000 point scale.

Calculating Credit Scores

Most credit reporting agencies use a variation of what's called a FICO score.  FICO is based on a credit scoring model developed by Fair Isaac and the components of that scoring model include:

FICO Score Components

To simplify matters even more, most creditors work with agencies to develop a kind of pass / fail / maybe screen - instead of looking at a numerical score.  Let's look at a couple of examples of how this works:

Utility Deposits

Let's say you're moving to a new home and you contact the electric company to make sure the electricity is flowing when you arrive.  If you don't already have an account with the company, they will contact the credit agency they work with and figure out if they need a deposit and how large the deposit might be.  This would be based on the pass / fail / maybe screen they've already established with the credit reporting agency.

Cellular Phones

Have you ever seen a cellular phone kiosk at a mall?  You can walk up to the kiosk and order service right on the spot.  How do they know if you'll pay your bills?  They know because the application you fill out gives then enough information to check with a credit agency.  In less than a minute they can call the agency, understand your credit risk, and hand you a phone.

Access to Credit Reports

The Fair Credit Reporting Act "promotes the accuracy, fairness, and privacy of information in the files of consumer reporting agencies."  That same act gives consumers several rights, one of which is one free copy of your credit report every 12 months.  This act does not give you access to the credit score each agency has developed for you.  Only the information used to develop the score.

Access to Credit Scores

If you want to see your score, you need to purchase it from the agency.  The cost of a credit report containing your credit score varies by agency, but the fee is around $10.  We would argue that getting access to your credit score should be a secondary consideration.  If the information on your report is accurate, then the score is merely a result of that input.

This is the primary reason that so much emphasis is placed on making sure the information contained in your report is accurate.  Companies offering credit repair services can only fix problems on your report.  They cannot change your score directly, only the inputs to the score's calculation.

Free Credit Reports

If you're interested in obtaining a free copy of your credit report from each of the three agencies, then you need to visit AnnualCreditReport.com.  If you think that your credit report might be inaccurate then you'll want to read through your report, looking for mistakes.  Each agency has a process for appealing and / or correcting mistakes.

Another good reason to request a free copy of your credit report is if you're planning on making a large purchase - such as a home or car - and you will be applying for a loan in the not-to-distant future.  It's better to make sure the report is clean before applying for credit, this way there is no unnecessary delay in getting a loan.

Contacting Credit Reporting Agencies

If you've discovered an error on your credit report or have a need to contact a credit reporting agency the mailing address and a toll free telephone number for each of the three major agencies appears below as well as links to their websites:

Equifax
P.O. Box 740241
Atlanta, GA 30374-0241
(800) 685-1111

Experian
P.O. Box 2104
Allen, TX 75013
(888) EXPERIAN (888-397-3742)

Trans Union
P.O. Box 1000
Chester, PA 19022
(800) 916-8800

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