Everything related to the credit bureau and your credit report may appear mysterious to the uninitiated eye. It may seem as if TransUnion and Equifax have spread the word to make our lives more complicated. But once we finally understand how a credit score works, we realize that it differs by the agency.
Since I had to analyze thousands of credit files during my first job at Desjardins, I know the system inside out. Granted, these aren't the most exciting secrets I'm about to share with you, but they’ll clarify some of the most common misunderstandings about your credit report and the Equifax and TransUnion agencies.
Do TransUnion and Equifax agencies present the same information?
In Canada, Equifax and TransUnion are the two agencies that collect information relating to your financial commitments and some of your consumption habits. It is often said that they are the two main personal credit rating agencies in the country, but it could just as easily be said that they are the only ones.
Your two reports are based on much of the same information and treat it very similarly. As a consumer, discrepancies in your credit score calculation have virtually no impact, unless they are one of the exceptions we discuss below. They are simply two different approaches to telling the story about your financial life. For example, a good payer with multiple accounts settled according to their terms will have two favourable credit reports, even if they aren’t the same. On the other hand, someone who pays late on a multitude of accounts will inevitably end up with two tarnished files.
We’ve already covered in depth the criteria required to have a good credit report, but here’s a brief recap:
- Diligence and timeliness: Do you pay on time and according to the terms?
- Debt ratio: Do you maintain relatively low balances compared to your limits?
- Use of credit: Do you have experience with more than one type of financing?
- History: Have you demonstrated healthy habits for several years?
- Credit applications: Have you approached too many lenders lately?
Equifax and TransUnion: the difference is in the algorithms
Equifax and TransUnion follow the same main principles, in particular your diligence in making payments on time, the duration and the diversity of your credit history and your debt ratio, in the calculation of the credit score on a scale of 300 to 900. What differs in their respective algorithms is the importance given to each factor and the duration of their impact.
Financing from large institutions, such as banks and credit unions, and accounts with major service providers like mobile phones and internet service providers are almost certainly listed on both your Equifax and TransUnion records. In my experience, some organizations choose to submit your account information to one agency only, but this is not the norm. This will effectively lead to a discrepancy between your two files. However, unless you have a very sparse history, the chances are low that the omission of a small account will harm you when it comes time to buying a home, for example.
Should I be concerned about both credit reports, Equifax's and TransUnion's?
Since each lender can view your file from either credit bureau, it's important that both are up to date and at their best.
Regardless of the agency, your file is your financial report card as a consumer and borrower. Financial institutions, merchants, employers, and landlords use it to assess your ability to meet your financial commitments. It's not rocket science; they’re trying to find out if you are trustworthy. Your credit score is obviously not a perfect reflection of your reliability in everyday life. However, that's the system in place, so you better know how to go about optimizing it.
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How can the differences between my files at TransUnion and Equifax impact me?
If both files contain no errors, their differences do not present significant issues for the vast majority of people. People who are starting to build their credit history, and also those who are trying to rebuild it after financial troubles, may encounter difficulties, however.
As an example, young Mary furnishes her first apartment through a furniture store that offers her 24-month financing. She signs up for it because it will enable her to start building her credit history. In turn, the merchant submits financing repayment information to Equifax only. If Mary applies for credit the following year and the financial institution checks only with TransUnion, she may be denied the loan due to non-existent credit history.
Most large companies submit customer information to both agencies, but if you are obtaining financing in order to build or rebuild your credit history, be sure to verify that this is the case.
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What if my Equifax file and my TransUnion file are different?
If there are conflicting information or material omissions, you’ll need to take steps to rectify the situation. As a first step, it’s best to contact the financial institution or merchant that is in error. These errors, such as a paid balance still showing unpaid, can often be found in the company's account management system. It will be their responsibility to follow up with Equifax and TransUnion to correct your information. But stay on top of this, as it is unfortunately always you who will have to check that this has been done properly, even if it may require countless calls and emails.
If your scores are not the same, but relatively similar, this is normal since the two credit agencies’ calculation methods differ. If they are vastly different, to the point where one of them prevents you from obtaining financing, it’s worth considering whether you’re able to have the situation corrected. Your best starting point for this task is to begin with the merchant or the financial institution that has made the mistake.
If the problem is due to an Equifax or TransUnion error, you’ll need to contact them. If you have to experience this situation as a consumer, I advise you to arm yourself with an abundance of patience. It's the kind of task we all preferred to avoid, but sometimes we just don't have a choice!
Why does the market need two separate rating agencies to offer very similar services?
For individuals, there are no real advantages to having two credit bureaus. While the slight differences have no impact on ordinary people, some organizations have specific preferences or needs for which one of the two agencies offers better-suited solutions. Depending on its industry and policies, an organization may have more confidence in only one agency’s methods to assess the risk associated with a potential customer.
In my own experience and that of professionals I’ve talked to in the banking industry, Equifax tends to be the most popular agency to reply upon when providing financing.
Sometimes the reason that your file will be checked through one agency rather than the other is quite simple. Back in the days when my job required me to go through dozens of credit reports a day, I preferred to get my information from Equifax. For starters, I liked its more user-friendly interface for my analysis needs, but also because I got along well with one of the agents in their telephone service. However, I have met people who swear by TransUnion.
Essentially, it's a bit like ketchup. Some people will never dip their fries in anything other than Heinz. While others…well, let's say they have some really weird tastes because Heinz is clearly better. (Hardbacon is receiving no compensation from Heinz for this plug.)
To each their own and to their own credit bureau!
How do I get my credit report for free?
Borrowell and Credit Karma gives you free access to a simplified version of your TransUnion file. In the vast majority of cases, these two easy-to-use services are sufficient to take stock of your financial situation and ensure that no errors appear in your records. I myself ran a test lately and I was able to validate the information and get my score in a few clicks.
Should you subscribe to Equifax and TransUnion?
Unless there is a case of force majeure, paying $20 to get your file directly from Equifax and TransUnion isn’t worth it. Especially since the two agencies must provide you with a free copy once a year, if you request it.
Entrepreneurs, especially real estate investors, who frequently need to finance their projects, could benefit from full access to their credit report at all times. This will give them an opportunity to make the necessary changes to improve their score before applying for their next loan. If this is your case, I recommend Equifax’s services at $19.95 per month.
What you need to remember is that the differences between TransUnion and Equifax will probably never have an impact on you. What really matters is paying your bills on time and using credit efficiently and wisely. If you follow these two golden rules, you’ll probably never have to worry about what's on your credit reports.
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