You may know that your credit score plays a big role in your financial opportunities, but are you still left wondering how it all works? From the three credit bureaus to multiple credit scores, get the facts to help in understanding the credit system.
The Credit Reporting System
It is important to keep tabs on all three scores and reports.
The credit reporting system is comprised of three sections: the consumer, the three national credit bureaus, and the lenders. As a consumer, your payment history and account details are reported by the lenders to one or all three of the credit bureaus.
When you apply for a loan or line of credit, lenders assess your credit reports and credit scores from one or more of the three bureaus to determine your creditworthiness.
It is important to note that you also have the right to obtain your credit score and credit reports.
The Three Credit Bureaus
There are three national credit bureaus which keep a record of your credit history: Experian, Equifax, and TransUnion. Each credit bureau independently collects information on your financial accounts from the lenders, which is then used to calculate their own credit scores. Remember that each of your credit reports may contain similar, but not the exact same accounts and information, but overall your credit score may only vary slightly from credit bureau to credit bureau.
Multiple Credit Scores
There are two ways you may have multiple credit scores that may be slightly different: varying credit history on each of your three credit reports or different credit scoring models. Although lenders make the final decision on which credit report and credit score they use to determine your creditworthiness, your credit score will likely be similar, or produce similar results, across all of them.
Now that you better understand the credit reporting system, it is important to keep tabs on all three scores and reports.