Why Are There so Many Credit BureausCredit bureaus gather and store massive amounts of data on consumers, including where you live, your birthday and your social security number. You’re probably familiar with the big three bureaus, Equifax, Experian and TransUnion, but there are dozens of other smaller credit reporting agencies that you may not be aware of, all collecting the details of your life and selling them off to companies that want to know your history. With all this personal information sitting in their files, why do there need to be so many of credit bureaus? If you’re curious, read on as we discuss the big three credit bureaus, the alternative fourth bureau and the positives and negatives of so many companies having your information.

The big three credit bureaus: Equifax, Experian and TransUnion

Equifax, Experian and TransUnion are by far the biggest three credit bureaus that supply the most consumer credit reports to lenders. They communicate with major banks, credit card issuers, lenders, debt collectors and public record databases to collect information on people’s borrowing habits, then process that information into credit reports and scores, usually using the FICO scoring formula. So, if they all provide the same function, you may be wondering why there are three of them.

The main reason there are three credit bureaus is competition — it’s important to recognize that the credit bureaus are private companies, and as such, they are competitive with one another. Region also played a factor, as before the 1970s, credit bureaus only covered a small area, as noted by the Federal Reserve Bank of Philadelphia. However, once computers started revolutionizing the industry with how much data could be stored and transferred, a few major players started dominating the market, which caused the regional credit bureaus to either go out of business or get acquired because they couldn’t keep up. Since the three credit bureaus are competitors, they don’t all have access to the same information. If you pull your credit reports from the three bureaus at the same time and look at them, they’ll have much of the same information, but there will also probably be small discrepancies. Maybe one of your lenders only reports your payment history to two of the bureaus and not the third, or one of your reports still has a negative item that got removed from the other two. Your Experian credit report may have items regarding your rental history due to its Rentbureau program that encourages landlords to report that information to it. Because of this, it’s very likely the scores calculated with these three credit reports will be at least slightly different.

Although the existence of the three big bureaus, instead of just one, makes some things more of a hassle, such as freezing your credit reports, it also makes it easier to spot inaccurate information and fraud. Since you can request one free credit report per year from each bureau, you can check one of your credit reports at different times per year for free. Similarly, if you use a credit monitoring service, you can regularly compare credit reports from all three bureaus to see if one contains derogatory credit items that the others don’t have.

The fourth bureau

In addition to the big three bureaus, there is also the so-called “fourth bureau,” though there’s some disagreement over what exactly the fourth bureau references. Some people say the fourth bureau is Innovis, which gathers much of the same kind of information that Equifax, Experian and TransUnion do. However, unlike the big three bureaus, Innovis primarily uses its data to create and sell mailing lists for pre-approved credit card and loan offers. Lenders do occasionally pull Innovis credit reports to determine if loan applicants are creditworthy, though not nearly to the same extent that they pull reports from the big three bureaus. If you’d like to see your credit report from Innovis, you can do so on its website, and like Equifax, Experian and TransUnion, Innovis gives you one free credit report per year.

The other fourth bureau people refer to is not just a single entity, but a collective of about 40 companies that self-identify as alternative credit reporting agencies in the United States. Many of these companies have a certain niche of information they collect, such as employment data, medical records and even casino gambling debt, that they then process into credit reports for specific industries.

Why do so many bureaus exist?

Especially after the Equifax breach, the idea of so many companies all gathering potentially sensitive information about you and selling it may be alarming. Obviously, there are potential security risks if these companies don’t make sure their data is safe. It also means your creditworthiness might be determined by more factors than you originally considered if a lender pulls your credit report from one of these alternative agencies. For example, someone’s credit reports at the big three bureaus look really good, but their report from an agency that collects data on utility payments contains a lot of negative items because they have trouble paying their heating bill on time in the winter. As such, if you’re applying for something that requires a credit inquiry, you may want to ask the company that’s checking your credit reports which agencies they pull from first to make sure something like this doesn’t happen.

Be that as it may, these alternative credit reporting agencies are actually important for people with little to no credit history on file at the big three bureaus. In 2015, the Consumer Financial Protection Bureau released a report estimating that 45 million American adults, particularly people in lower-income communities, had no information on file at the big three bureaus, or had so little information on file their reports were considered unscorable. Since it’s difficult for adults to qualify for credit and loans with no credit history, alternative credit reporting agencies provide a way for lenders to measure the creditworthiness of people using other metrics. The largest alternative credit reporting agency, PRBC, lets people voluntarily enroll and report their own items like rent, utility, phone and insurance payments, to help people with little or no credit history build a file of positive payments. Additionally, certain businesses, like the insurance industry, rely on information from these bureaus to make decisions about customers. As worrisome as it is that so many alternative credit reporting agencies have data on you, if they disappeared, it would make doing business much harder for a lot of people, as they would have no alternatives.

If you’re worried about what these alternative credit reporting agencies have on their reports for you, the Consumer Financial Protection Bureau has compiled a list of alternative credit reporting companies, and the list helpfully marks the ones that offer free credit reports. For people who are struggling to build credit, you may want to look into getting a secured credit card in addition to looking at what alternative credit reporting agencies can offer you. To learn more ways you can boost your credit score, follow our credit monitoring blog.