Credit bureaus are credit reporting agencies that collect and provide credit information on individuals, businesses, and other entities. Equifax, Experian, and TransUnion are the three major credit bureaus in the United States.
The credit bureau industry was created for one purpose: to help lenders determine the risk in loaning a specific borrower money. Lenders will use the credit report in the decision on loaning money at all and if they decide to loan the money, the credit report will be used to determine what interest rate will be charged.
With that in mind, monitoring your credit report and ensuring that you have a good credit score is critical to securing a loan, especially when it comes to real estate investing.
How The Credit Reporting Industry Works
A credit report is a detailed history of an individual’s credit activity. This information includes how many lines of credit an individual has, how much debt they owe, what their debt-to-credit ratio is, whether they have historically made their payments on time, whether they have any loans, whether they’ve declared bankruptcy in the past, and more.
The credit reporting industry works in a three-step process, so let’s break it down:
- Credit card companies and banks report credit card activity and loan payments to credit bureaus every month. They do this because they want the credit bureaus to ensure that the credit histories of every borrower are accurately reported.
- The credit reporting agency collects and organizes the information, making it available to anyone who requests it for a fee. Based on the data collected, a credit score is also calculated, which indicates a person’s general creditworthiness.
- Credit card companies and lenders use credit reports to determine whether or not they should extend credit to a borrower. For example, let’s say a lender wants to know if there’s a risk involved in lending you a large sum of money.
- They will pull your credit report and see how much debt you have, whether you pay your debts on time and in total, and whether there are any other blemishes on your report that could raise a red flag.
What Are The 3 Credit Bureaus?
While there are many credit bureaus, the three major ones in the United States are Equifax, Experian, and TransUnion. They all collect credit information on individuals without their permission.
However, they are all governed by the Fair Credit Reporting Act (FCRA). The FCRA dictates that everyone has a right to know what’s in their report, has a right to dispute any information in their report, has a right to be told if the information is being used against them, and has a right to request a security freeze.
With that in mind, the following is a brief breakdown of each major credit bureau:
Equifax was established in 1899 in Atlanta, GA. They collect credit information worldwide from over 800 million consumers and 90 million businesses in 24 different countries.
Experian is the newest of all three credit bureaus, having been founded in 1996. Although they are one of the primary three credit bureaus in the U.S., they’re based in Ireland. They currently provide credit reports for more than 235 million U.S. consumers and over a billion consumers in 37 different countries.
TransUnion was established in 1968 in Chicago, IL. They provide credit reports on more than 200 million consumers in the U.S. and around a billion consumers worldwide.
What Are Their Functions?
The primary function of all three credit bureaus is to use historical credit data to create up-to-date credit reports on consumers for the use of lenders and creditors. These reports essentially help real estate investment lenders and creditors to determine how creditworthy consumers are.
They use this information to determine the risk profile of the consumer and to establish the terms and conditions for a loan.
However, credit bureaus also provide services to consumers, usually for a fee. For example, these bureaus may offer services such as I.D. theft protection, financial alerts, online dispute resolution, Internet scanning, credit monitoring, and more.
Comparing The Three Credit Bureaus
Each credit bureau offers individual plans that include various consumer services based on the plan hierarchy.
Equifax has an individual and family plan for $19.95 that includes a daily credit report, a daily updated credit score, credit monitoring, up to $1 million for I.D. theft insurance, Internet scanning, financial alerts, online error disputes, and lost wallet assistance.
Experian only provides a monthly credit report, and its services are dependent on the plan. They have a low-cost $9.99 individual plan, a $19.99 family plan, and a $24.99 premium plan.
Finally, TransUnion charges $24.95 per person and does not offer a family plan. They have many similar services to Equifax and Experian, but only offer $25,000 in I.D. theft insurance and do not provide Internet scanning, financial alerts, or lost wallet assistance.
Why Their Credit Score Ratings Are Different
If you’re keeping track of your credit reports from all three credit bureaus, you may notice that your credit score differs slightly from one to the other.
It’s important to note that whilst small variations are common, there shouldn’t be a significant difference. If there is, it may be due to an error on the report, and you may want to consider disputing the report.
However, a slight difference can be expected as the method each credit bureau uses to calculate credit scores is different. Your credit score may even change within the same credit bureau as each bureau tweaks its calculation method over time.
Additionally, not all lenders report your credit activity to every bureau, which will therefore affect what information each bureau uses to calculate your credit score.
Keep in mind that multiple credit inquiries can lower your score by a few points if they’re done within a short period of time. If one bureau reports multiple inquiries from a creditor but the others don’t, your score will differ somewhat. Likewise, some creditors may only submit credit activity to one of the bureaus, affecting how similar your scores are.
Since some creditors may only perform a credit inquiry with one of the bureaus,it can be an issue if your score differs significantly on one report because of an error. Because of this, you should go over your credit reports from each bureau to ensure that there are no errors that could end up costing you a real estate investment loan approval.
How To Get Your Credit Reports From Them
You can secure credit reports from all three credit bureaus by simply signing up for one of their paid plans. However, if you want to obtain a free credit report, do the following:
- Equifax: Sign up for the myEquifax program (at no charge) for a free credit report twice a year.
- Experian: Register on the Experian website for a free credit report every 30 days.
- TransUnion: For a free copy of your TransUnion credit report, you’ll need to go to AnnualCreditReport.com and fill out a request form.
How To Resolve A Credit Error With The Credit Bureaus
When reviewing your credit reports, you may find an error or an inconsistency. You should dispute any errors you find as this may help to improve your credit score. You can do this by mailing a letter to the bureau in question or submitting a dispute online.
The following are the addresses and links for each bureau where you can submit your dispute:
(Equifax online dispute)
Equifax Information Services, LLC
P.O. Box 740256
Atlanta, GA 30374-0256
(Experian online dispute)
P.O. Box 4500
Allen, TX 75013
(TransUnion online dispute)
TransUnion Consumer Solutions
P.O. Box 2000
Chester, PA 19016-2000
Do You Need All Three Credit Reports?
While you don’t necessarily need to purchase a plan from all three bureaus, you should check your credit report from each bureau at least once a year.
Doing so will allow you to compare reports for potential errors or discrepancies and help you ensure nothing untoward is negatively affecting your credit score. Fortunately, everyone is legally entitled to one free annual credit report from each bureau.
Become Creditworthy. Get These Tips.
The ability to secure real estate investment loans depends heavily on your credit scores. As such, you should aim to maximize and maintain your creditworthiness with each of the three major credit bureaus. Luckily, doing so isn’t that difficult.
First of all, check your credit reports annually to assess your credit scores and look for any errors that may need to be disputed.
Secondly, pay down your debts, including your credit card balances, outstanding debts, and any loans you’ve taken out.
Thirdly, ensure that you make payments on time and in full. Consider setting automatic payments to avoid manual errors. Simply making payments on time and paying down your debts can help boost your credit score and improve your report over time.
By improving your creditworthiness and maintaining a good credit score, you’ll put yourself in a much better position to secure the real estate investment loans you need.