We have all seen The Wizard of Oz – if you haven’t you should, it’s a classic. Anyway, most of us are familiar with the line “pay no attention to that man behind the curtain”. Oz (the wizard) says this after his phony illusion is exposed and he is found hiding behind the curtain.
Often we think of the Credit Bureaus as mysterious entities pulling levers and pressing buttons. So let’s pull back the curtain and take a look.
In this Blog I’ll address 3 questions –
- what is a Credit Bureau?
- what exactly does a Credit Bureau do?
- what are the differences (there are 3 major)
#1. What is a Credit Bureau?
First of all a Credit Bureau is NOT the government. It may certainly feel that way sometimes, but not the case. Let me attempt to demystify this notion. There are 3 major Credit Bureaus. They are Experian, Equifax, and TransUnion. They are businesses. They are Corporations with CEO’s, employees, and bills to pay. I won’t bore you with the long history of the 3 Bureaus but I will say this… they were started to protect Lenders from Consumers. Folks would rip off lenders then move away and repeat the process. Also, Lenders needed protection in the 1930’s during the great depression, mainly from Corporations. Lenders needed a way to protect themselves from fraud and credit risk; and so the Credit Industry was born. Cool fact – The oldest Credit Bureau is Equifax. Started in 1899 as “Retail Credit Company”.
#2. What exactly does a Credit Bureau do?
Credit Bureaus have a few major rolls, to protect Lenders by collecting consumer credit information in one place(known as a credit report) then assess the information that produces an easy to read number (know as a FICO Score). The Bureaus then sell the Report to Lenders and Creditors upon request(when the consumer applies for credit) in order to check a consumers creditworthiness and eliminate credit risk. By the 1990’s legislation required that lenders report (Fair Credit Reporting Act) all credit activities on both Consumers and Corporations. These may include, on-time payments, default, write-offs, account openings and closures, and available credit, etc. In addition, by law all 3 Bureaus must allow consumers to 1 free credit report per year. This law was setup to protect consumers against incorrect information being reported, or even fraudulent activity. Like to learn more about what Inversion Credit does? Go here >
#3. What are the Differences?
Have you every checked your credit score with all 3 Major Credit Bureaus? If you haven’t, check it here. You should know your score across all 3 Bureaus. If you’ve recently done so, you will find that your FICO score is different across all 3. That begs the question – “why?”
I’m glad you asked! The obvious answer is that they all report different information at different times. The more complex answer is that each Credit Bureau specializes in a particular subject and thus scores differently. Take Experian for example; they specialize in providing businesses with credit-worthy leads for direct mailing. If you get a pre-approved credit card then it was probably Experian who decided that you qualified. So for those with lots of credit card history, your Experian FICO Score will reflect exactly that. To learn more about how credit scores work visit our website here. I hope this blog post has lent some clarity on the subject.
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Stay thirsty my Friends.