As you plan your financial future, you’ll come to realize the importance of credit. Your credit is what many banks and credit card companies use to determine whether or not to offer you a loan or line of credit. Your credit score is made up of many factors, including the length of your credit history, the standing of your current and past credit accounts and the amount of available credit you have. Three different reporting companies compile your credit information. These companies assign you individual scores, which can vary.
Credit Reporting Agencies
In the United States, banks and other lending institutions use three different credit bureaus – Equifax, Experian and TransUnion – to determine your creditworthiness. Banks select certain agencies or even certain types of reports within those agencies to purchase credit information for customers applying for credit. For example, a bank that is determining whether to offer you a car loan – and at what rate – may purchase an Industry Option FICO score, which reflects your past auto loan history and payments.
Your Equifax score likely differs from your TransUnion or Experian score. That’s because Equifax tracks your accounts differently than the other credit reporting bureaus. Instead of grouping all of your present and past accounts together, Equifax separates your credit accounts into “open” and “closed” categories. This means that a credit card account closed four years ago may be weighted differently than one that is currently open. Equifax also uses an 81-month credit history, which differs from the traditional seven years that other agencies use.
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TransUnion uses most of the same personal information that Equifax does in scoring your credit; however, TransUnion may find certain aspects of your credit history more important than Equifax does. For example, TransUnion credit reports feature a more extensive employment history section. This report notes your current and previous employer, your position and your hiring date. Banks may use your TransUnion report to verify your employment information. Additionally, your TransUnion report shows a unique credit account scoring method, which uses colors to reflect your account standing and symbols to show on-time, late or unpaid payments.
Both Equifax and TransUnion use the Fair Isaac Corporation, or FICO, mathematical formula to calculate credit, but since each agency has access to different pieces of information, that mathematical formula won't always calculate the same score. Credit report errors are also very common, so while Equifax may have your correct information, TransUnion may not – and vice versa. Check your credit reports from all bureaus regularly for any incorrect information that could be bringing your score down. You can obtain a credit report from Equifax, TransUnion or Experian directly, or go through one of many credit monitoring services in the market.