There are three major consumer credit reporting bureaus – Equifax, Experian and TransUnion. The credit bureaus provide an important financial service for lenders and consumers by collecting and reporting consumer credit information. Lenders, credit card companies, insurers, landlords and utility companies all use the information provided by these agencies to make decisions about your creditworthiness as a borrower or customer.
The three major credit bureaus are separate agencies, and work independently of one another, each using their own systems to calculate three separate credit scores which may differ from one another. When reporting information to the credit bureaus, lenders must report to each one of the credit bureaus separately. Therefore, each credit bureau may have different information.
The credit bureaus keep an invisible paper trail of all of your account activity when it comes to credit and loans. When you make a payment on your credit card, or open a new account, this information is reported to the credit bureaus and added to your credit report.
In addition to collecting information, the credit bureaus distribute information as well. When you apply for a mortgage or an auto loan, for example, the lender will contact one or more of the three credit bureaus to inquire about your credit history before making a decision. This inquiry, too, becomes part of your credit report, and is known as a “hard inquiry.” “Hard inquiries” are inquiries that come from a lender who is inquiring for the specific purpose of extending you credit. When you check your own score, that is called a “soft inquiry” and does not count against you. Numerous hard inquiries, however, can have a negative impact on your score because it indicates that you are a distressed borrower who is desperate for more credit.
You are entitled to a free copy of your credit report every year from each of the three major credit bureaus. You can visit the credit bureaus’ individual websites for more information.