Do Credit-Reporting Bureaus Collaborate or Compete?

by Dawn Handschuh, Personal Finance Writer   

Credit-reporting bureaus and the credit scores they offer can sometimes seem like a puzzling and confusing business. If you've ever ordered your credit report or score from one or more of the credit bureaus, you learned that, like a bowl of jellybeans, they come in an assortment of flavors.

The three credit-reporting bureaus — Experian, Equifax and TransUnion — are independent, private companies that collect data independently and do not share it with each other. Experian markets its PLUS credit score while Equifax and TransUnion offer the more widely used FICO^® credit score, which was created by Fair Isaac. Equifax uses a scoring range between 350 and 850. Experian's scoring range is 330-830, while TransUnion's scoring range is 300-850.

According to TransUnion, the average person's credit score can vary as much as 40 points, depending on which credit bureau score you're looking at.

Competition strains relationships

Like a bickering extended family that can't live with each other but can't live without each other either, the credit bureaus and Fair Isaac have a strained yet symbiotic relationship. Fair Isaac depends on the data collected by the bureaus to sell its FICO product, and the bureaus depend on Fair Isaac for its scoring formula.

But the bureaus also collaborated in 2006 to launch a new credit score called VantageScore to directly compete with the FICO score. Because VantageScore would use the same scoring criteria across all three bureaus, the bureaus said VantageScore would make scores more consistent and less variable. (VantageScores would fall between a range of 501 and 990.)

Fair Isaac subsequently filed a lawsuit against the three credit bureaus claiming unfair competition, although it later dropped Equifax from the lawsuit. The trial was expected to proceed against Experian and TransUnion in February 2009 but is still pending.

In a more recent move that reduced consumer access to the credit scores viewed by lenders, Experian decided earlier in 2009 to stop letting Fair Isaac use its data to calculate the FICO scores that Fair Isaac sells to consumers. Experian will still use its own data to make FICO scores available to lenders. FICO scores can still be obtained by consumers through TransUnion and Equifax.

Why credit scores will never match each other

Although it may seem desirable, regardless of the outcome of pending litigation, consumer credit scores ordered from all the bureaus will never match exactly. Here's why:

• Lenders aren't required to report your bill-paying activity to all three credit bureaus, and many don't. This ensures that there will likely always be gaps or omissions between what one credit bureau reports compared to the others.
• Even when lenders do report to your data to all three bureaus, they may do so at different times, and the bureaus process the data at different times, so your credit report history will vary at any given time.
• With the exception of mortgages, lenders that review a new loan application may not pull credit reports from all three bureaus; the "hard" inquiry that your loan application triggers will thus only appear on one or some of the bureau credit reports.