Checking your credit score can help you prevent identity theft and improve your chances of getting a loan. While every citizen is entitled to one free credit report from each of the three credit bureaus each year, far too many people don’t take advantage of this opportunity.
To make matters worse, many only request a report from one of the three agencies, instead of all three.
Why One Credit Report Is Not Enough
There are three national credit bureaus: Experian, TransUnion and Equifax. Each reporting agency obtains its own information from its own sources. They do not share information, nor do they correlate data.
What does this mean for you as a consumer?
- Each credit bureau may obtain different information about your credit history
- Some creditors will only notify certain reporting agencies
- The three bureaus compete with each other, so the information may vary widely
- Your credit score will be different with each bureau
Some lenders do not notify all three reporting agencies, so false or inaccurate information may harm your score from one of the bureaus and not the others.
Are you still relying on one single credit score service to keep tabs on your credit?
If your answer is yes, you may be putting your credit – and identity – at serious risk.
The only way to get a true picture of your credit worthiness is to check your score with all three bureaus: TransUnion, Experian and Equifax.
3 Credit Bureaus, 3 Scores = The Complete Picture Of Your Credit Worthiness
There are three national credit bureaus in the U.S.: Equifax, TransUnion and Experian. These bureaus each have credit histories on most of us, and they use a special algorithm to produce their version of the FICO Score based on the data they receive.
Because each bureau calculates scores based on the data they have, most people actually have three different credit scores.
Most people know that the U.S. has three major credit bureaus, but they don’t know much about them outside of their names.
Founded in 1899, Equifax is the oldest of the three major credit agencies. The bureau accumulates and maintains data on more than 800 million consumers and over 88 million businesses across the world.
Equifax uses its data on consumers to calculate credit scores based on:
- Number of accounts (10-12%)
- Types of accounts (15%)
- Used credit vs available credit (30%)
- Length of credit history (5-7%)
- Payment history (35%)
Experian plc is considered an information services group, and they have operations in more than 40 countries around the world. The company’s corporate headquarters is in Dublin, Ireland, but they have also have headquarters here in the United States.
Experian, like Equifax and TransUnion, is regulated by the Fair Credit Reporting Act (FCRA), and it handles credit disputes through its National Consumer Assistance Center in Texas.
When calculating your credit score, Experian considers the following factors:
- Types of accounts
- Total debt
- Age of accounts
- Number of late payments
TransUnion provides credit information and management services to 500 million consumers and 45,000 businesses in 33 countries across the world.
TransUnion considers the same factors a Equifax when calculating scores, which include:
- Payment history (35%)
- Debt (30%)
- Length of credit history (15%)
- Types of accounts (10%)
- New accounts (10%)
All three agencies are publicly traded companies on the stock exchange, and while they offer similar services, their operations are not connected.
Why You Need to See All 3 Bureau Scores
Why would you need to see your score from all three credit bureaus?
Isn’t one bureau enough? Your credit report is the same across the board – right? Wrong.
Remember – 3 Bureaus, 3 Scores
The three major credit bureaus use similar algorithms to calculate consumer credit scores. But each agency has its own set of data, which means your score may be different (in fact, it probably is) with each bureau.
Why would my data be different?
Landlords, lenders, credit card companies, utility companies and other companies that send you monthly bills usually report information to one (maybe two) of the credit agencies. Your mortgage lender may report to TransUnion and not Equifax. If you missed a mortgage payment (or two), that information may not show up on your Equifax report. In this case, your Equifax score would be different (probably higher) from your TransUnion score.
Simply put: not all subscribers report to all three agencies. For this reason, each agency is working with a slightly different set of data. And while your score may be different with each agency, the numbers are usually pretty similar.
3 Scores is the Only Way to Get a True Picture of Your Credit
You applied for a new car loan, but the lender denied your application. According to your TransUnion report, you have an excellent credit score. What gives?
Chances are, you weren’t looking at the same report as the lender.
Lenders typically obtain credit reports from one of the three credit bureaus. If you don’t know all three scores, you can’t prepare for your application.
It’s crucial to know how high (or low) your score is with each agency, and it’s equally important to know what’s on your credit report with each one.
When you have information from all three bureaus, you can:
- Pinpoint and dispute errors that may be lowering your score
- Work on improving your score
- Know what you’re up against when preparing loan applications
Having all the information also puts you in a better position to be approved for the loan you need.
Improve Your Chances of Being Approved
Whether it’s a personal loan, car loan, mortgage or a credit card, getting approved is essential (maybe critical) to your financial situation.
Knowing all three scores will paint a clear picture of your credit history and your scores, so you know whether you can apply right now or work on improving your credit first.
If all three of your scores look great, your chances of being approved increase significantly.
How Creditors Measure Your Credit Score
Lenders use your credit score in order to calculate a potential borrower’s risk for repaying a loan. The more risk associated with a borrower, the more they will be charged in interest rates. In most cases, if your score in below 620 the risk will outweigh the potential benefit of paying back the loan and the applicant will simply be denied.
What type of system do lenders use to calculate your score?
FICO Score System
As you are probably aware, the FICO score is the most commonly used credit score model system in the US.
The credit score range is 300 to 850 and are what most Americans are accustomed to in terms of when they apply for a car loan or mortage. The median mark for a good score is 700. If you score falls in the 600 and under range, you will most likely be facing higher interest rates and leaving money on the table with your loans. The smart consumer should be aware of their score before applying for new loans. If your score is too low, take some time to clean up your credit report in order to qualify for better terms.
Vantage Score System
Another scoring system was created by the 3 credit bureaus in 2006 and it is referred to as a Vantage Score. The bureaus wanted to create a more consistent system that would allow consumers to do a “apples to apples” comparison between any of the bureaus. This attempt to create a more standardized approach to credit scores has been somewhat success and Vantage Scores have grabbed a larger market share in 2016.
The range for Vantage Scores are from 501 to 990, and each score is also accompanied by a letter grade.
- 901 – 990 = A
- 801 – 900 = B
- 701 – 800 = C
- 601 – 700 = D
- 501 – 600 = F
The A-F grades are just like the grades you received in school. An “A” is excellent, while an “F” is very poor. VantageScore takes into account 6 different components to create their final credit score.
One of the major drawbacks of only reviewing your credit report once a year is that you never see the snapshot view lenders get by using these scoring models. Your “score” snapshot includes all of the following information:
- Your payment history. Have you missed payments in the past? If so, was this one time accident or a recurring offense? If it is the latter, it will have a major impact on your score.
- Your outstanding debt ratio. This is sometimes called your “credit utilization”. Basically, this refers to the amount of credit extended to you versus your current debt balance. This makes up close to 33% of your score.
- Credit History. Do you have a decades worth of solid credit history? If so, you are much more likely to have a higher score than someone that just opened their first credit card.
Every time you have a credit check performed, it has a minor negative effect on your score.
Each credit bureau has their own credit scores.
- Equifax – ScorePower (FICO from Equifax) and Equifax Credit Score
- Experian’s PLUS Score
- TransUnion’s Credit Score and VantageScore
Because each bureau uses its own credit scoring model and their own set of information about your credit history, you wind up with differing scores from each reporting agency.
A true credit monitoring service, offers a Credit Check Total view of your finances and provides you with a 3 in 1 score.
The major advantage that these services offer is that they supply you with both your credit report and score. This provides you with all of the information you need to start improving your credit and disputing errors.
How Often Should You Check Your Credit Score?
Now that you know how important it is to check all three scores, you may be wondering how often you should check your credit. Once a year? Once every six months?
No. Every month.
That’s right. You should be checking your score every single month to keep tabs on your credit. Why every month? Two words: identity theft.
According to the Bureau of Justice Statistics, 17.6 million Americans were the victim of identity theft in 2014. In 2016, $16 billion was stolen from 15.4 million consumers in the U.S.
In 2015, Experian – the credit agency – was hacked. The attack put the personal information of 15 million people at risk.
In 2013, Target was hacked, and identity thieves walked away with information on 40 million customers. The retailer was forced to pay affected customers up to $10,000 each – pennies compared to how much financial (and emotional) damage ID thieves can do.
Hacks and identity theft are on the rise. Your personal information can land into the hands of identity thieves at any time.
Identity theft is a serious threat to every consumer, and it can do irreparable damage if it isn’t caught early on. Some victims never truly recover from ID theft.
That’s why it’s so important to check your score every month. And when you use the right service, you can easily view all of your accounts and be alerted to new account openings that you may or may not have approved.
What is the Best Way to Check My Credit Scores?
There are a few ways to check all three of your credit scores. The simplest (and cheapest) method is to request a report from each agency. By law, all three agencies must provide you with one free credit report each year.
But checking your report once per year isn’t enough. A lot can happen in a year if someone gets a hold of your identity. By the time you realize something is wrong, it may be too late and your identity may be permanently damaged.
You need more protection. You need to know about suspcious accounts the moment they’re opened.
The absolute best way to check your credit score is to sign up for a credit monitoring service that lets you keep track of all three scores in one simple place – whenever you please.
Along with checking your score, you’ll receive daily monitoring alerts to let you know if something suspicious shows up on your credit report. You’ll also gain access to helpful tools and information on how to maintain good credit. You’ll even get help with disputing claims if you find false or inaccurate information on your report.
When applying for a loan of any kind, you need all the information you can get. The only way to get all the information is to view your credit report and score from all three bureaus.
Don’t risk losing essential financing simply because you didn’t have all the facts.
Commonly referred to as a “Tri Merge Credit Report”, this is a special all inclusive file that lenders use after a applicant has meet their pre-qualification requirements. This report is essentially a merged file of all your credit information that is commonly used when applying for a mortgage.
The key information in these is that it pulls your scores and credit information from all three bureaus-Equifax, TransUnion and Experian. That helps lenders quickly access your financial status. Why would you want anything less than that?
Monitoring services that do not use all three bureaus may leave you vulnerable. They also hinder your chances of improving your credit simply because you don’t have access to all the information in all three of your credit reports.