Credit Bureaus – Why are there 3 ?

One of the things that people new to credit repair and financial literacy often wonder is why there are three different credit reporting agencies. If it’s an official agency, wouldn’t one do the job? The answers have a lot to do with how the agencies are structured and their actual roles in individuals’ credit scoring.

1. They’re for-profit companies.

It’s common for people to believe that the credit reporting agencies are federal government agencies. But, Experian, TransUnion and Equifax are all businesses. So, asking why there are three different credit reporting agencies is kind of like asking why they make Pepsi and Coke.

While these are private companies, they are governed by laws that dictate how they can use your information. For instance, they must send you your report when it is used to deny you a loan. They also must be responsive when you are trying to get an erroneous debt removed.

2. They’re in competition.

These three companies are in competition for one another. They make their money by selling reorts to lenders that can help determine how risky it is to do business with a potential borrower. If you compare your credit reports from the three agencies, you will often find that the information on them is not identical. Often, one will miss a debt that is shown on another, or there will be a small difference in how they report an account.

Because the three bureaus are in competition, they don’t generally share information with one another. While you work to repair your credit, it is important to request your reports from all three bureaus. If you find errors, make sure to request corrections directly from all three reporting agencies.

3. There doesn’t need to be just three.

At the current time, there are three major credit bureaus. But, there are also other credit bureaus that you may run into in other situations. ChexSystems keeps track of people’s history with bank accounts. If you’ve bounced checks or overdrawn accounts in the past, their reports can keep you from getting new accounts. There are also credit reporting agencies that deal with specific types of debt, such as rent-to-own furniture or other sub-prime loans.

Over time, we will see more companies offering credit reporting services. Plus, the three credit reporting agencies are starting to add more services for both consumers and lenders. TransUnion is now offering a credit score that is similar to your FICO credit score. While this score may not be used by many lenders, it can give consumers a ballpark idea of their credit scores and help them determine whether they will qualify for credit cards, car loans or mortgages. By keeping up to date on what credit reporting agencies are out there and being used by banks, you can empower yourself to protect your financial future.