These days, the lives of many are ruled by the opinion of the credit bureaus. Unfortunately, you need better and better credit right now to get loans or even land your dream job. Interestingly enough, many Americans don’t really even know what the credit bureaus do. If you find yourself in this situation wondering what is going on with that whole credit score thing, anyway, then here’s a quick primer for you.
Essentially, credit bureaus are gatherers and interpreters of data. The three big names to remember here are Experian, Equifax, and TransUnion, but some new bureaus with different calculating methods are coming up, as well. There are also smaller bureaus that are local or statewide. The process of getting your credit score actually starts with these smaller bureaus that most people know next to nothing about.
These bureaus are the ones that do most of the information mining. Your credit history and score are based on information about even non credit related things, such as your bank account and your utility bills. If you fail to pay your bills on time or bounce a check at a local bank, these bureaus will snatch that information up. For a price, they send it to the major reporting bureaus.
Sometimes larger entities will report directly to the bigger bureaus. If your information is credit related, such as information about a car payment or credit card balance, it’s likely to go straight to at least one of the bureaus. Smaller entities like local banks and payday loan places may report to just one of the credit bureaus, but larger entities like major credit card companies are likely to report to all three.
Once the credit bureaus have all your information, they each compile it into a separate credit report. One reason that you need to check your credit report each year is that not all of the bureaus will report your score the same. Sometimes this is because of mistakes, but other times it’s just because different entities receive different information about you.
From your credit report comes your credit score, that mysterious number that seems to rule a large part of your life. The bureaus all work with a similar formula, the Fair Isaacs formula, to calculate a score from the report. Your credit score is based on things like your length of credit history, balance to limit ratio, and amount of revolving debt.