Credit reports allow us to monitor our financial health, keeping an eye out for suspicious activities such as fraudulent applications and accounts made in your name. You’ve likely heard that there are currently three major credit bureaus: Experian, Equifax and TransUnion. But why three? And do you really need a 3 bureau credit report? Firstly, let’s skim over what credit bureaus are and how they work.
It’s important to recognize that credit bureaus are not federal government agencies – they’re private, for-profit businesses. While this doesn’t mean they aren’t governed by laws dictating how your information can be used, each bureau can uniquely interpret and process financial activity and information from credit lenders (your payment behaviours and credit applications) using their own algorithms.
Naturally, businesses in the same field will compete with one another. And these bureaus are no different, with each selling your compiled financial histories to credit lenders who rely on that information. For instance, if you apply for a mortgage, it’s a certainty that, during the application process, your bank will check out an up-to-date credit report in order to determine your rate – and whether to even offer you a mortgage at all.
In a nutshell, credit reports help inform businesses about how risky you are to…well, do business with. In other words, are you worth the gamble? But getting back to the big question: Why exactly is it so important for us to keep an eye on all three credit reports? Why not just one? Or even two? Aren’t they reporting the exact same thing, anyway?
Actually, no. While in theory you’d hope identical reports would be produced, that’s not quite the reality. Each bureau collects and rates credit history data in its own unique way, and while they do collect the same types of information, processing methods vary, which could be the reason for report differences and scoring criteria.
You’ve also got to consider how different creditors report information, plus the risk factor of personnel making an administrative faux pas every now and then. For instance, not all lenders will send information to all three bureaus, meaning a loan or credit card may only appear on, say TransUnion, but not an Equifax or Experian report. And human error – perhaps even computer error too due to a system crash, etc – could cause incorrect information to be passed on to a bureau.
Because the bureaus are not responsible for spotting inconsistencies and mistakes – it actually comes down to us to do that, hence the reason it’s so important to check all three. Of course, it would make perfect sense for these major three bureaus to just share their information to ensure it remains as consistent and correct as possible. But since they’re businesses in direct competition, it’s doubtful that will be happening any time soon.
While keeping tabs on all three credit bureau reports is a decent start, anyone serious about their financial reputation (and shielding themselves from credit-ruining identity theft) ought to really consider signing up for a Credit Monitoring Service. In addition to offering access to all three reports, these services offer credit scores and real-time credit monitoring, meaning you’ll be alerted to any unusual/suspicious account activity as soon as it occurs, often by email or mobile.