In the U.S., there are three major credit reporting agencies (Equifax, Experian and TransUnion) that collect credit-related information on you. Lenders use this information to evaluate your credit worthiness when you apply for a loan. Why are there three agencies? Do lenders access all three of your credit reports when you apply for a loan? And if they only access one of the three, how do they make that decision?
In short, the answer is – it depends. There is no universal policy or approach that all lenders use. There are, however, some general industry practices in place that can help you understand how lenders go about making this decision.
[Related: How to Order Your Free Annual Credit Report]
For most types of credit-such as credit cards, retail cards, automobile loans, cell phone service, etc.-the lender will typically access your credit report and credit score from only one of the three credit reporting agencies. With advances in technology, most of the reporting of your credit activity (updates on your payments with a given lender or various public record information like bankruptcies, etc.) is electronically reported to all three credit reporting agencies. As such, a lot of the information on your credit report is the same across all three bureaus, so the lender feels comfortable making the credit review decision based on accessing just one of the three. Plus, the lender has to pay for each report they order. So instead of buying all three, it saves them money to access just one credit report and score for each credit evaluation decision.
Lenders choose which credit bureau to access based on a variety of criteria:
- Research – The lender may have conducted research and found that one particular bureau has the best coverage for the area you live in.
- Cost & Service – A lender may prefer one bureau over another because they find one provides the best customer service, or simply offers their services at the most competitive price.
Mortgage lending, however, is the exception to this. When you apply for a mortgage, the lender typically pulls all three credit reports and credit scores from all three bureaus for each person on the application. This makes sense as a mortgage is typically the largest credit obligation most of us take on, and lenders want to make sure they have the most complete representation of information available in order to make their credit granting decision. Plus, the cost of accessing the multiple credit reports/scores are covered in the long list of loan application fees that are passed on to you, the consumer, when getting a mortgage loan.
[Related Article: How Many Credit Reports Contain Errors?]
As a consumer, you never know which credit reporting agency a lender may be using, so your best bet is to make sure the information being reported on you is accurate with all three. The credit reporting agencies are separate companies and they generally do not share information with one another. Don’t assume that just because the information is accurate at one, it is at the other two as well.
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