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Understanding Your Credit Score: Differences Between Experian, TransUnion, and Equifax

by Staff Writer on March 26, 2013

Credit Card

For anyone hoping to obtain a significant amount of credit, there’s one thing to always remind yourself: having a great credit score will make all the difference. Not only is a credit score required when applying for credit cards, home mortgages, or other loans, it’s also used to determine your eligibility for a new apartment, or even your monthly auto premiums.

While this may sound a bit scary, keep in mind that there are several legal protections set in place to ensure that information about your credit is reported both fairly and accurately. The Fair Credit Reporting Act of 1970 was one of the first laws enacted to ensure that consumers had an advocate to help them dispute errors made on their credit reports, as well as to limit how credit scores can be used to restrict consumer access to important life necessities, such as housing and employment.

Your credit score is typically determined by data collected about your credit history by three major credit bureaus: Experian, Equifax and TransUnion. Because each bureau has its own methodology for determining your credit score, many credit-offering institutions opt to use a more comprehensive score calculated by the Fair Isaac Corporation (now FICO) based on your record with all three bureaus. This is known as your FICO score.

How is My FICO Score Determined?

According to this informative article posted by MyFICO.com, your FICO score breaks down into five different elements of varying importance. The biggest factor that determines the strength of your FICO score is your “Payment History,” which accounts for 35% of your overall rating. This aspect of the score is based on your history of paying back debts and whether or not you made these payments late or on-time. If you pride yourself on making regular, on-time payments to your credit accounts, this simple routine could have a very beneficial impact on your FICO score.

Aside from your “Payment History,” the “Amounts Owed” across the different credit accounts you have open can make up 30% of your FICO score. Therefore, ensuring that you strike a balance when it comes to your credit balances is key to optimizing this aspect of your score. Other factors that determine your FICO score, such as “Length of Credit History,” “Types of Credit in Use” and “New Credit Accounts Opened” have less of an impact on your score, but are still things you need to be aware of.

What is Equifax?

Founded in 1899, Equifax is the oldest major credit reporting agency in the United States; they currently keep records on over 400 million credit holders throughout the world. Because the company has been around for so long, Equifax is considered by many to have the most reliable methodology when it comes to determining your credit score.

Like FICO, the proprietary score determined by Equifax maxes out at 850, with the highest score representing the best possible credit profile. On your Equifax credit report you can view great pieces of information, such as distinctions between which credit accounts are open or closed, as well as a comprehensive credit history that goes back 81 months. To find out more about how Equifax computes your credit score, check out this helpful article written by the company itself.

What is Experian?

Based in Dublin, Ireland, Experian was founded in 1996 and quickly rose over the last decade to become one of the biggest and most trusted credit reporting agencies in the world. The company has headquarters in countries throughout the world and currently employs over 17,000 people. The company’s North American branch joins Equifax and Transunion as three of the largest credit bureaus in the United States.

Experian credit reports distinguish themselves from those offered by Equifax and TransUnion by providing “Status Details” that inform you when closed or delinquent items on your credit report will fall off. Also, Experian offers an innovative “Balance History” feature that keeps you up-to-date on the monthly balances you carry across your open credit accounts. For more information on how Experian calculates its unique credit score (also known as the PLUS score), CreditExpert offers a brief, yet informative, summary on how it works.

What is TransUnion?

As the third largest credit bureau in the United States, TransUnion has made a name for itself as a detailed and comprehensive credit reporting agency that markets directly to consumers. Founded in 1968, TransUnion now services about 45,000 different businesses and 500 million consumers worldwide. The company’s revenue was posted at a remarkable $1.024 billion for 2011.

In addition to offering employment history as a feature of its credit reporting service, TransUnion also makes things easier to scan by color-coding your accounts based on their status. For example, a satisfactory account will be colored “green,” while a “red” box could mean that a credit item is reflecting a late payment of 90-120 days. Moreover, TransUnion’s credit scoring system, known as Transrisk, uses a model that is quite similar to that used by FICO and can be less costly to procure whenever you need it.

VantageScore vs. FICO Score

While FICO still remains the standard credit scoring model used by most institutions to determine your creditworthiness, newer models, such as VantageScore, have cropped up recently as viable alternatives. As with most competition in the marketplace, these newly devised credit scoring models can only mean good things for consumers who are looking for more effective ways of monitoring their credit rating.

The VantageScore, which was developed by TransUnion, currently stands as one of FICO’s biggest competitors. The VantageScore model is quite similar to the model FICO uses (too similar, according to FICO, which launched an unsuccessful lawsuit against VantageScore Solutions in 2006), but it does much to streamline the credit scoring process in several ways.

VantageScore takes a more comprehensive approach to determining your overall credit rating by making the factors less vague and more relevant to a consumer’s creditworthiness. For more detailed information about the differences between the VantageScore and FICO credit scoring models, check out this great article over at Bankrate.com.

Begin Taking Credit Seriously

In an age where your credit score can mean the difference between financing a new home and getting your apartment application rejected because of a few late credit card payments, ensuring that consumer credit reports and scores remain fair and accurate is critical. So far, credit reporting agencies have done a good job of keeping each other in check by constantly finding ways to innovate their services and credit scoring models.

Now’s an exciting time to begin taking your credit seriously. Be sure to check out the many sites linked above to find out more about how credit reporting works across the different agencies. Also, visit AnnualCreditReport.com to claim your free credit report from each of the three bureaus (available by law to every U.S. citizen once per year) and find out where you stand in the world of credit today.

Categories: Monitoring Credit

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