Major Credit Rating Agencies
Understanding The Credit Bureaus
Equifax, Experian, & TransUnion
There are three major credit rating agencies in the United States: Equifax, Experian, and TransUnion. These agencies collect and analyze consumer financial data to generate credit scores, which lenders use to assess a borrower’s creditworthiness. While there are different types of credit scores, the most widely used, and one you’re likely most familiar with, is the FICO Score, which, as previously mentioned, ranges from 300 to 850.
- Equifax: Founded in 1899 and headquartered in Atlanta, Georgia, Equifax is one of the oldest and most prominent credit rating agencies. Equifax gathers credit data from various sources, such as banks, credit card companies, and public records, to generate credit reports and scores. They use a proprietary model called the Equifax Credit Score, which ranges from 280 to 850. histories it is not as widely used as the FICO Score, the Equifax Credit Score is still utilized by some lenders to assess credit risk.
- Experian: Established in 1996 and based in Dublin, Ireland, Experian operates in more than 30 countries worldwide. In the United States, Experian collects credit information and generates credit scores using the FICO Score and its proprietary model, the Experian PLUS Score, which ranges from 330 to 830. Experian also offers credit monitoring services and identity theft protection, helping consumers maintain control over their credit information.
- TransUnion: Founded in 1968, TransUnion is headquartered in Chicago, Illinois, and is the youngest of the three major credit rating agencies. Like Equifax and Experian, TransUnion collects and processes credit data to generate credit reports and scores. TransUnion utilizes the FICO Score model and its proprietary scoring model, the VantageScore, developed in collaboration with Equifax and Experian.
FICO Score: The Industry Standard
While each credit rating agency offers its proprietary credit score, the FICO Score, developed by the Fair Isaac Corporation, remains the industry standard. The FICO Score is lenders’ most widely recognized and used credit score across various industries. The FICO Score model takes into account five key factors: payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%), and credit mix (10%). FICO Scores range from 300 to 850, with higher scores indicating lower risk.
Understanding the Role of Credit Rating Agencies
Credit rating agencies like Equifax, Experian, and TransUnion play an essential role in the financial ecosystem. They gather and analyze consumer credit data to produce credit reports and scores that help lenders assess borrowers’ creditworthiness. By providing a standardized metric for evaluating credit risk, these agencies enable lenders to make informed decisions about extending credit to consumers. As a consumer, it’s vital to understand the role of these agencies and how your credit score is calculated to maintain and improve your financial health.