What are the national credit bureaus? The big three -- Equifax, Experian and TransUnion -- collect and maintain data about your financial life that is contained in your credit report. They use this data to assign you a credit score. Your credit score can affect everything from your odds of approval for credit cards to your interest rates for loans.
Equifax, Experian and TransUnion track many of your financial transactions, as well as your:
-- Credit card and loan balances
-- History of payments on credit cards and loans
-- Number and type of accounts
-- Bankruptcy filings
Each major credit bureau uses this information to determine your credit score.
By law, the bureaus -- also known as credit reporting agencies -- can provide information about you to many types of businesses, including:
-- Lenders
-- Employers
-- Volunteer groups
-- Government agencies
-- Landlords
-- Banks and credit unions
-- Payment processors
-- Retail stores
-- Debt buyers and collectors
-- Insurance companies
-- Telecommunications and utility providers
-- Gaming casinos that extend credit or take checks
The notion that multiple credit reporting agencies are keeping tabs on your spending might seem like an invasion of privacy -- and maybe dangerous, especially after the massive Equifax data breach and a recent series of other highly publicized data breaches. But there is no practical way to avoid having your transactions documented, says John Ulzheimer, a credit expert who has worked at Equifax and FICO.
"Live with the fact that you're going to have a credit report," he says. "It's better to understand how they work than to sit there and complain about them."
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How Many Credit Bureaus Are There, and What Do They Do?
The big three credit bureaus dominate, although many smaller credit reporting agencies track your financial behavior. The Consumer Financial Protection Bureau maintains a list of dozens of smaller agencies, plus the main ones.
The so-called "fourth bureaus" have popped up to serve niche markets, says Thomas Nitzsche, manager of media and brand at nonprofit credit counseling agency Money Management International. Some might track rental payments, while others track payments to payday lenders.
Equifax, Experian and TransUnion each keep a credit report on you.
But what do your reports contain? Your day-to-day financial activity makes up the bulk of your credit report. If you apply for a credit card, loan or line of credit, the lender likely will alert one or more of these agencies. That information then will appear in your report.
"There's no requirement to report to all three credit bureaus," Ulzheimer says. "As a lender, you can choose to report to one or two, or none, or all three."
Most big lenders report to all three credit bureaus, Ulzheimer says. But smaller lenders might alert just one of these agencies.
Two other types of information find their way into your credit file and can negatively affect your score.
First, d ebt collectors sometimes report information about you to the credit bureaus, such as your failure to pay bills. For this reason, you cannot assume that delinquent payments on utility or cable TV bills -- or even an unpaid gym membership or magazine subscription -- will not appear on your credit report, Nitzsche says.
"If you do fall behind on those, after a few months, they can go to a collection agency," he says. "At that point, the collection agency can report them."
Finally, credit reporting agencies may turn to public records, such as bankruptcy filings, to collect data.
In recent years, some items in your credit report that once greatly affected your score -- medical debts, civil judgments, paid collection debts and tax liens -- no longer carry as much weight with the bureaus, Nitzsche says.
"From a consumer standpoint, it's obviously a good thing," he says.
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How Do the Credit Reporting Agencies Use Your Information?
As each credit bureau compiles your financial information, it goes into a credit report that serves as the basis of your credit score. To calculate a credit score, the agencies must "marry a credit report with a scoring model," Ulzheimer says.
The primary scoring models -- FICO and VantageScore -- are "the King Kong and King Kong Jr. of the scoring industry," he says.
FICO created and owns the oldest and most widely used scoring model. FICO allows the credit bureaus to use its algorithm to generate credit scores, says Ulzheimer, who has worked at FICO.
The company determines which factors -- such as the amount of credit available to you and your payment history -- weigh most heavily on your score.
"The bureaus don't have any influence over the weighing of information in your FICO score," Ulzheimer says. "FICO has control over that because they are the ones that built the model."
Because each agency feeds data from its own credit report to the FICO model, scores can vary from agency to agency. There may not be much difference if reporting is fairly consistent, but scores could be very different if there are, for example, collection accounts on one agency's report but not another. "Your credit score is likely to be different across the three because the data isn't going to be the same," Ulzheimer says.
Equifax, Experian and TransUnion joined forces to create their own credit scoring model, VantageScore, as an alternative to FICO.
How Can You Protect Your Credit?
Check your credit report at least yearly. Although "you don't have the right to not have a credit report," Ulzheimer says, you still can make sure the information in your report is accurate. "Consumers have the right to challenge things," he adds.
Federal law requires each of the major credit bureaus to provide you a free annual copy of your credit report. You can request this report at AnnualCreditReport.com, which is operated by the three bureaus.
In addition to these yearly reports, you can request a credit report when:
-- You have been denied credit, insurance or employment, or were the target of another adverse action, based on a credit report.
-- Your credit report appears to be inaccurate because of fraud.
-- You need access to a credit report to place an initial fraud alert.
-- You are unemployed and plan to look for a job within 60 days.
-- You receive welfare benefits.
-- Your state's laws grant you free access.
If you find an error on your report, alert the proper credit bureau, and request that the item be removed. Then, check your other credit reports to see if the error appears. To dispute an error, use the following links:
-- Equifax
-- Experian
-- TransUnion
Each credit bureau may take up to 45 days to investigate and respond to your dispute.
"That consumer might be successful in getting something removed from one of their credit reports but not successful in getting it removed from the other two," Ulzheimer says.
[Read: Best Balance Transfer Credit Cards.]
Do You Need a Credit Freeze?
A credit freeze can provide an extra layer of protection for your report if you are worried about becoming a victim of identity theft. "Freezing your reports at the big three is really the step to take," Ulzheimer says.
Doing so prevents thieves from opening accounts in your name. But opening legitimate accounts while your credit is frozen is almost impossible. Thanks to a federal law passed in 2018, you can freeze and unfreeze your credit for free.
Parents can request a free freeze for their children under age 16. A guardian, conservator or someone with a valid power of attorney can get one for dependents as well.
You must contact each of the three major credit bureaus to freeze your credit. If you request the freeze online or by phone, the credit bureau must place it within one business day.
Once the credit freeze is in place, it will remain until you ask each bureau to lift it. If you want to lift a freeze and make your request online or by phone, the credit bureau must do so within one hour.
If you ask to add or lift a credit freeze by mail, the credit bureau must complete your request within three business days of receiving it.
What Is the Danger of Ignoring Your Credit Report?
When you're going to make a major purchase, such as a new car or home, do not wait until the last minute to check your credit report for errors, Nitzsche says.
"Sometimes it takes a matter of weeks or months to get things resolved," he says. "So you really don't want to wait until the heat of the moment."
Even checking your credit report once a year is not often enough, Ulzheimer adds.
"That's woefully inadequate," he says. "Once a year is terrible. I want to see what's on my credit report every month."
Sign up for a service that will let you access your credit report as often as you'd like. You may have a credit card with unlimited access to your report as a benefit. "So many companies are willing to give them to you for free," Ulzheimer says.
Finally, paying bills on time is paramount to keeping your credit score strong. Automate payments as often as possible so you don't forget to pay a bill, Nitzsche says.
"Don't rely on your memory to help you out," he says. "Those due dates creep up, and you might miss a reminder."
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