The Big 3 Credit Reporting Agencies
A credit reporting agency is a repository of information that holds an individual’s credit or payment history. An individual’s credit report is created when a request for a report by a lender, credit card company or other authorized party requests it. Credit bureaus or credit reporting agencies hold the consumer’s credit data in their databases. The data is always there but the credit report does not really exist until it is asked for. It is then compiled by the credit reporting agency based on the information stored in the credit reporting agency’s file.
Information in a credit report is supplied by lenders, from court records, credit card companies, banks, mortgage companies and other creditors including the individual to create an in-depth credit report. A credit reporting agency or credit bureau collects and reports the credit information from these sources and retains the data until called for. An individual’s credit history is compiled and maintained by these credit reporting agencies as needed following their procedures and legal guidelines. The information held in the report is also used to calculate an individual’s credit score best a computer scoring model at the credit reporting agency.
There are three big national credit reporting agencies in the United States. Experian, TransUnion and Equifax are the three biggest credit reporting agencies. They are not the only credit reporting agencies in the United States but they are the biggest by a considerable degree. There are many smaller, regional and even industry specific credit reporting agencies that provide clients with credit reports. There are also many different international credit reporting agencies that operate in specific regions.
These big credit reporting agencies are the ones in which most of the attention about credit reports and credit scores is focused on because they maintain the largest national databases of consumer credit information. The big three credit reporting agencies perform two similar basic services: collecting and reporting credit information.
The three credit reporting agencies are independent of one another and though they conduct their business of data gathering to compile credit reports in a similar fashion they do not operate in the same way. This is the primary reason why consumers who obtain a credit report from the three largest credit reporting agencies get a report back with some different data. Therefore, a credit report from Experian will contain slightly different information than a credit report from TransUnion and Equifax. Not every creditor and lending institution such as credit card companies, banks or mortgage lenders report to all three credit bureaus, leading to additional difference between the three big credit reporting companies.
The majority of the credit data supplied to a credit reporting company is on a voluntary basis. A credit card company or lender can choose to supply the data or simply not choose to be burdened with the responsibility of supplying data files on their customers to the credit agencies. A common example of this is small and regional credit unions. It is likely that loans and credit accounts from these entities will not be found in a credit report. However, thousands of creditors, lenders and other businesses do send credit information and updates to each of the credit reporting agencies, frequently once a month.
The lending institutions and other creditors that do not supply information, send updated consumer credit information to one or more of the big three credit reporting agencies. The information often includes how much the consumer owes at that institution, the original amount of money extended, when the account was opened and the payment history. The same lending institutions and creditors that supply information to credit reporting agencies may also be the ones requesting credit reports when a consumer applies for credit.
The three credit reporting agencies also review public records for information, such as court records from bankruptcies, foreclosures and legal judgments. Information retained also includes recorded information about credit applications and credit inquiries.
TransUnion, Experian and Equifax now market their credit reports directly to consumers, in addition to its primary business of providing the reports to potential creditors. The big three credit reporting agencies can be contacted at the following numbers. Please note, in order to get your free credit report you want to go to annualcreditreport.com or call 877-322-8228. All of the services performed by the big three offered directly to the consumer are fee based.
Equifax, Inc. is a consumer credit reporting agency that is one of the big three credit reporting agencies. The company was founded in 1899 and is the oldest of the three agencies. Equifax is based in Atlanta, Georgia.
For general information and to order a credit report or score directly from Equifax you can contact the company at:
www.equifax.com
800-685-1111
P.O. Box 740241, Atlanta, GA 30374
Experian is a consumer credit reporting agency, also part of the big three credit reporting companies.
General information and credit report order information can be obtained at:
www.experian.com
888-EXPERIAN (888-397-3742)
P.O. Box 2002, Allen TX 75013
TransUnion is a consumer credit reporting agency, considered one of the big three agencies. TransUnion was created in 1968 and is based in Chicago, Illinois.
General information and to order credit report and score:
www.transunion.com
800-888-4213
P.O. Box 1000, Chester, PA 19022
What are FICO Scores
FICO scores are one of several credit scores that are used by lenders, banks, insurers, credit card companies and other companies to measure consumer risk objectively. A credit score can be created by different companies based on information in a credit report, but FICO® scores are the most used credit bureau scores in the world. According to the Fair Isaac Corporation, the creator of the FICO score, more than 100 billion scores have been sold by the company and three out of four US mortgage originations are based on a FICO score.
Most credit bureau scores are often called “FICO scores” because most credit bureau scores used in the U.S. are produced from software developed by Fair Isaac Corporation. In fact, Fair Isaac Corporation or FICO pioneered the wide spread use of credit scoring models. The FICO score is available through all of the major consumer reporting agencies in the United States and Canada: Equifax, Experian and TransUnion. But not all credit scores retrieved or sold to consumers are FICO scores.
Credit scores, including FICO scores are derived from the data in an individual’s credit report. Different credit scoring models can be used by different companies. And there are different credit scores and credit score modeling programs available. There is some significance to the fact that the FICO score is the biggest and as of now has the greatest impact in credit related decision making. The FICO score is a mathematical algorithm that is made available to the three main credit reporting agencies in a software package.
Different credit bureau scores will evaluate a credit report differently and comparing the absolute numbers between different credit bureau scores is meaningless. A higher number from one company does not necessarily mean it indicates the borrower is less of a credit risk. FICO scores currently range in value from 300-850.
The credit score, whether it is a FICO score or another model, is used primarily determine a numerical valuation on the quality of credit risk an individual presents. Credit scores are designed to be a guide to future risk based solely on credit report data. All current credit score models, including FICO scores, evaluate the data in the credit report and quantify it with a number in which the higher the number or credit score, the lower the risk.
One bit of confusion that can arise within the lending industry over FICO scores is the different named scores that are actually developed by Fair Isaac Corporation. FICO scores technically have different names at each of the credit reporting agencies. All of these scores, however, are developed using the same methods by the Fair Isaac Corporation.
Like an individual’s credit, a FICO score will change over time. As your data changes within the credit report or through the credit reporting agency, so will the credit score since it is based on the data in the credit report.
It is also important to note that since each credit reporting agency will have similar but not identical information about an individual’s credit profile, therefore the FICO score or any credit score will be slightly different from each of the major credit bureaus, Experian, TransUnion, and Equifax. This all means that an individual will have three potentially different FICO scores, one for each of the three major credit bureaus.
Remember, regardless of credit score obtained, the score is based on the information contained in the credit report. To change a score, you have to change the underlying data the score is based on. Any information not found in your credit report is not used to calculate a credit score or FICO score.
Beware of the Little Things that can Hurt Your Credit Score
Countless articles regarding credit inform consumers about the big events that can have a negative impact on their credit score. But, many consumers fail to realize all the little transactions or little known transactions that may have a fairly significant and harmful influence on their credit score.
We all now the importance of good credit and a good credit score in our society with its wide ranging impact from credit and borrowing to employment to insurance and housing and more. Most consumers are also well aware that the higher their credit score the better. And most consumers are aware or becoming more aware of the basics for keeping their credit score high. What some consumers fail to realize is all the lesser know actions that can really harm a credit score.
The basics on credit and credit score management are covered within this site as well as other sources on credit management. These are the key elements that to avoid in order to maintain a high credit score. They are the actions that can have a clear detrimental affect on your credit report and credit score. The obvious actions include late payments on credit accounts that are in a credit report such as credit card, car loans and mortgages, carrying too much credit card debt and more.
But there a lot of consumers and lending professional who do not know all of the not so obvious factors that can harm a credit score. This list reviews the so not so obvious actions to avoid as well as some actions that involve common sense but, where some consumers are not aware at just how damaging their action really is.
#1. Having credit accounts with balances near their maximum amount available. The percentage of available credit used is a key factor in determining a credit score and having a credit account, even if it is a balance transfer on a credit card to consolidate debt, at or near its total available credit limit will eat up all of the available credit and will lower a credit score.
#2. Short lengths of time between new credit accounts or having multiple credit accounts opened in a short period of time. Even consumers with good credit who open multiple accounts will find their credit score may drop due to opening new accounts in a short period of time.
#3. Having late payments accounts turn into collection accounts that in turn become accounts listed in the public records section of your credit report. Public records like judgements, liens and bankruptcies can have a big, negative impact on a credit score. These types of accounts can have a big impact even when the dollar amount is relatively small.
#4. Having too many store credit cards and too few bank credit card accounts. These accounts have a lower value as they are evaluated by credit scoring models and therefore having more of these accounts and fewer heavier weighted credit accounts can bring a credit score down.
#5. Having no recent credit activity or no recent revolving account activity such as credit card balances and monthly payments. It can actually hurt your score if you pay off your balance in full each month or simply don’t make transactions with credit. Without a monthly payment history, the credit score models have very little data to work with.
#6. Collection accounts and more collection accounts. Collections accounts may rank as one of the more obvious credit score killers, and there are now more types of accounts that are being sent to collection companies that report to credit reporting agencies which will shift a credit score lower. More and more local governments are reporting unpaid parking tickets, library fines and other delinquent fees to collections agencies which may get reported to the credit bureaus and impair a credit score.
#7. Creditors showing delinquent credit records that normally don’t report to credit reporting companies are now reporting in greater numbers. This can be especially true on those customers with a sketchy payment history. The biggest example of this change is the utility companies such as the electric company, gas company, phone company, etc… More utility companies are reporting seriously delinquent accounts as well as customers that are simply 30 days late to the credit reporting agencies which is definitely going to hurt an individuals credit score.
#8. Excessive inquiries. Every time someone looks at an individuals credit report, it is considered as an inquiry and stays with the credit history. Too many inquiries can lower a credit score since it is indication of someone opening more credit and incurring more debt.
And don’t forget more of the basics that will damage a credit score such as having high credit card balances, high balances relative to available credit and late payments.
Rules to Follow with Debt and Debt Collectors
We all want to pay our bills on time but sometimes due to some financial crunch it is not possible to make even the minimum payments and meet due dates. If a debt goes unpaid for an extended period of time, creditors may turn your account to a collection department or agency. It is true that debt collectors have the right to demand payment and take legal action if necessary, but often they would rather collect a portion of the debt than have to take more drastic actions.
Before you start dealing with delinquent accounts and collection agencies, take a look at your monthly budget. Take a real look, not a wishful peak. If your budget is upside down or underwater it is time to address this situation. Half the world has too much debt and is struggling; no one will look down on you because you are struggling too. But address your budget to obtain your own financial freedom, figure out how far behind you are and then what you can fix or maybe what you can not fix. Stress will kill you, not the credit card bill.
If your credit is not in terrible shape already, it may be possible to reduce your other monthly expenses. This may very well mean making hard choices or changing your lifestyle to fit your income and get your bills under control. A little bit of pain to reduce expenses is well worth it to alleviate the stress and maintain fair to good credit. Consider all options such as, selling a household goods, getting a part time job, taking equity out of your home, applying for a non secured signature loan, obtaining a loan from a relative or other money raising endeavors.
If the wolves are already at the door, that is the debt collectors and collection agencies, handle these debt collectors courteously and promptly. Often, creditors are more agreeable to working with consumers who admit they are in trouble and need some help with their budget and working things out.
Before you handle what it is that is coming your way, it is important to know where you stand. Try to understand what debts are delinquent, how much you owe and what your capacity is to pay these debts back. This is fairly standard budgeting 101. Unfortunately, for many consumers who are behind the eight ball the number one response to bill collectors and over indebtedness is to bury their head in the sand. Don’t be alarmed, this is a common response. But, try to pour an extra cup of coffee one morning and wrote down where you stand.
In the big picture, you can’t go to jail for owing money on your car or credit card or medical bill. Relax, but spend time to review where you stand. Delinquent debts are going to be reflected in your credit report and impact your credit score for the worse but you can rebuild and money is just money it is not love or happiness.
It is usually best to act quickly for the most effective resolution. Heck, if you can’t settle the bill to your satisfaction you can always try again. The faster you address the issue early on, the more likely you are to help save your credit report and credit score but equally important if you can not reach an agreement in the early stages with the bill collector, let them stew for awhile while you work on plan B.
Be prepared to negotiate. Collection agencies are almost always authorized to negotiate repayment terms that are significantly below the total amount of the debt. If you can’t pay the full amount, but are willing to pay a percentage, tell them so. In many cases, they will prefer to get something from you than nothing at all. Don’t cave in too early, make them work for their money and pay as little as you can.
Make sure not to offer too much information. Don’t give a collection agency your bank account information or credit card number. If at any time you feel pressured, slow the conversation, out the conversation on hold or if you are really feeling overwhelmed exercise some power and hang up. High pressure collectors should be hung up on or better yet if they are caught engaging in illegal collection activity they should be sued.
Collection agencies have had a reputation for bullying and even using threatening tactics to try to intimidate people into repaying debts. This kind of abuse and harassment is illegal and should be reported to the FTC.
The Fair Debt Collections Practices Act is a Federal Law meant for the protection of consumers. The Fair Debt Collections Practices Act outlines specifically what collection agencies can and cannot do when trying to collect unpaid debts. Some of the rules they must follow such as not being allowed to call at your workplace without your approval. If you need to or want to, you can send a letter using registered mail to the credit collection agency asking them to stop calling you. By law, the collection agency must comply.
Obscene language or threats of violence are absolutely forbidden and a collector is not allowed to threaten you with false statements. The law also defines the type of information a debt collector is entitled to collect from the debtors. The FDCPA spells out the rules for legal action that can be taken against the creditors and the collection agencies for violating the Act.
You should know your rights and demand to be treated fairly and with respect when you work with debt collectors and collection agencies.
If you are having too much difficulty making ends meet and your credit is already damaged you may want to put a hold on everything by looking into a bankruptcy filing. Consider this option if you are so far in debt that you can never repay it. Issues regarding bankruptcy should be reviewed with an attorney or at least a credit counselor. Bankruptcy can have the biggest impact on your credit profile and may be the least desirable from a credit standpoint. But, when it is necessary, it is a viable option that should not be ignored.
In the early stages of credit collections and debt management, the goal is to try and rearrange your budget and clear up the debts and keep your credit record from too much damage.
Simple Myths Regarding Credit Scores
Myths and urban legends abound on the Internet, but most of them can’t impact your finances. However, there are many financial myths that can cost you a lot of money. Myths about credit reporting and your credit score can take a significant amount of your hard-earned money out of your wallet.
Making a lot of money will help your credit report and your credit scores.
It is a common misconception that a big salary will lead to spotless credit, low interest rates and a high credit score when, in fact, your salary has no impact on your credit report or credit score. People with impressive salaries still get hammered with high interest rates and get slapped with decline letters when they let their credit card payments lapse, take on too much debt or engage in other behavior that impacts their credit report.
Your paycheck may not help you get the credit you want, but it is important to lenders. Before lenders loan you money, they want to know that you can make payments well into the future. The ability to make payments many years in advance is called “capacity.”
Your salary is used by lenders to determine your capacity to make regular payments. Lenders use credit reports and credit scores to decide whether to issue you credit. You can have a large salary, but if you have poor credit, it won’t matter to lenders. Money matters, but it’s not all that’s important to obtain a good credit history and credit score.
Paying cash for everything will help your credit rating.
Paying cash for everything fails to establish any type of credit history. Without any credit history, you won’t have a report or a credit score for lenders to evaluate. In order to be deemed credit-worthy, you must open and use a variety of credit accounts. A lack of credit history will result in low credit scores. Good luck getting a loan with low credit scores!
Even if you think that you will never need credit, you will need it! Whether you need a car or a home, your credit report is your golden ticket. Your credit report is checked before you make a major purchase and in some places, before your rent anything from an apartment to a movie. Without some form of credit it is difficult to make online purchases or even to make hotel reservations for hotels and rental cars.
Using credit is an important part of society. Living a cash-only lifestyle isn’t a good thing. Managing your credit, credit profile and credit scores is a good thing.
A great credit score is a result of a credit report WITHOUT any late payments.
Did you know that only 30% of your credit score comes from paying all of your bills on time? You won’t have a great credit score without on-time bill payment, but paying your bills on time is only part of having a great credit report.
The rest of your credit score is made up of things besides our bill payment history. Most people don’t know this. It would come as a surprise to many people who struggle to make monthly minimum payments.
If you want to maintain an excellence credit score, you must not allow yourself to become mired in debt. Paying just the minimum amount each month sends a signal to the credit world that you are barely keeping your head above financial water. Making more than the minimum payments will help improve your credit score.
A divorce decree will absolve you of your credit responsibilities.
Focusing on your joint debts while going through a divorce is one of the most important things you can do. While judges will often decree that one spouse will take responsibility for paying the car note and the other spouse is responsible for the mortgage and credit card bills, the lenders will still honor the terms of joint contracts since the divorce decree does not invalidate or alter the original loan or credit card contract.
Simply stated, if your name is on the contract along with your spouse, the creditors will report any late payment on both credit reports. If your spouse defaults on the loan, you can be held accountable by collection agencies, despite any judge’s ruling and your credit report and credit score will reflect any delinquent payments.
All three of your credit reports and credit scores will be the same.
Nothing can be further from the truth. Your credit reports from the big three agencies will be different, and so will your credit scores.
There are three main reasons for this:
Not all lenders report to all three credit-reporting agencies. Reporting is a voluntary act and most lenders don’t report to all credit agencies.
An inquiry record is left whenever someone checks your report. You will likely have a different number of inquiries on each report since most lenders only pull a single report. The only exception to this is mortgage lenders, which pull all three reports.
Lenders may update their accounts on your reports at different times of the month depending on the credit reporting agency. A lender may report to one agency on the first Monday of the month and the next agency on the third Tuesday.
These reasons make it highly unlikely that your credit score will be identical across all three credit reporting agencies.
If you have poor credit then your credit scores will suffer for seven years.
This common myth is just not true. If you have credit problems, the design of the credit reporting system allows you to start improving your credit score in a matter of months in some cases.
The credit score system calculates your scores daily based on the information in your credit report that day. If you work to immediately improve your credit score by making on-time payments and consolidating debt, your credit score will improve immediately.
If you are about to pay off a large debt or if you have a negative report removed, you will see an instant improvement in your credit score without waiting for seven years.
Check cards can help your credit reports and scores.
Check cards do not help your credit score any more than a checking account can. Check cards just provide paperless access to the cash in your checking account, even though they may be branded with a Visa or Mastercard logo. These logos make it easy to use your debit card where credit is accepted, but they are not credit cards. They can harm your credit, however.
If you don’t carefully record any check card transactions, including any associated fees, it could result in bounced checks and declined transactions. A pattern of bounced checks an poorly managed checking accounts is tracked by companies that may report to credit agencies. Don’t let check cards harm your credit!
Moving your credit card balances around will help you hide your debt from the credit scoring models.
Your credit score is calculated using something called “total revolving debt,” the total amount you owe on your credit cards. Moving your balance from one card to another does nothing to lower or hide your credit card debt from the credit scoring model. If you have 3 cards with $1000 worth of debt or 2 cards with $1500 worth of debt, you still have $3000 worth of revolving credit card debt. It is impossible to hide your credit card debt.
Even if you consolidate all of your debt onto one card, you still have $3000 worth of revolving debt. The only way to remove credit card debt from your credit report is to pay it off!
You can improve your credit score by transferring balances that are near their credit card limit to more than one credit card so that the amount of credit card debt available per card is higher.
Paying off (or “settling”) late payments, tax liens, collections or judgments will remove them from your credit reports.
Paying off your bills and negative accounts is the right thing to do, but it’s not that easy to remove them from your credit report. You can’t make negative reports disappear just by settling your debts.
Many people think that paying off debts somehow cancels out the negative report, but all reports, eve negative accounts that have been paid off, will remain on our credit report for up to seven years. The accounts will be marked to show that the debt has been paid or release, which is better than unpaid debts, but they will still adversely affect your credit score.
Collection agencies take advantage of this myth by promising to remove the item from your credit report if you will pay your account. Don’t fall for this lie. It’s just not true. The only way to remove negative information from your credit report is for the information to be inaccurate.
Credit reporting agencies will never remove an accurate negative account just because the account has been paid in full.
In addition, when a payment is made on an old delinquent account, the date is updated in your credit history and can sometimes negatively impact your credit score. You have to be very careful to review all delinquent debts and evaluate which ones to pay, which ones may be removed due to the statue of limitations and which ones can be settled to your advantage.
Closing credit cards will increase your credit scores.
Of all the credit card myths out there, this one is the biggest. It is the most common piece of advice that people are given as a solution for low credit scores. Not only is it not true, it can actually do a great deal of damage to your credit score.
The reason it can be so damaging is because of a measurement called “revolving utilization’ that credit scoring models use. This is the way that revolving utilization works. If you have 10 credit cards with a credit limit of $1000 each, you have an aggregate credit limit of $10,000. If three of these cards are maxed out, then you have an aggregate credit card balance of $3000. This would give you a revolving utilization of 30% ($3000 divided by $10,000=.30). The seven cards that you are not using keeps your revolving utilization number low.
If you close out those seven unused cards anyway, you will have three maxed out credit cards. This means that your revolving utilization is 100% and your credit scores are now in the basement.
This example may be exaggerated, but no matter how many cards you have or what the limits are, closing unused credit accounts almost always damages your credit scores.
If you have closed your unused credit card accounts you can repair the damage, but they will all have unavoidable negative consequences.
Try to reopen the seven accounts that you just closed. Of course, it won’t be as simple as closing them was. The lenders will pull your credit report, which could lower your score, and with a high revolving utilization number, you may not be able to open all the accounts. It will also show on your credit report that you opened seven new accounts.
Request a credit increase on your remaining cards. Your creditors may deny your request and they will pull your credit report, which will result in new inquiries on your credit report.
These credit myths can be damaging to your credit report and credit score if they acted on without confirmation of the consequences. Repairing a damaged credit history and improving a credit score is not an overwhelming endeavor but it does take knowledge and proper action to achieve the optimal results.