Credit Bureaus 101

There are three credit reporting agencies in the United States: Experian, Equifax and TransUnion. All three collect information including if you pay your bills on time, if you’ve ever filed for bankruptcy, and where you live and work. When applying for a credit card or loan, companies will pull your credit report (a hard inquiry) to make a decision about extending credit to you. These hard inquiries will lower your credit score a few points, but it should rebound within a few months. In addition to this impact on your score, credit card companies weigh the number of recent inquiries highly when deciding to approve your application. Luckily, most credit card companies will only pull one credit report when you apply for a new card (…with the exception of Capital One who pulls all three!).

How Hard Inquiries Show Up on Credit Reports
The number of accounts will be the same on all three reports…

This is an important opportunity for creating your credit card application strategy. Since companies only pull one report, they are only able to see recent inquiries by other companies that pulled a report from the same agency. For example, if Chase pulls my Experian report when I apply for Chase Sapphire Reserve they will only see inquiries from other companies that recently pulled my report from Experian. Any hard pulls on my TransUnion or Equifax reports will remain unseen.

Before opening new credit cards, you should figure out which credit bureau each bank pulls. This may vary by state. Sign up for an account with Credit Karma for free access to your TransUnion and Equifax credit reports. Also make a free account with Experian. This will provide a full picture of which credit bureau is pulled from each bank.

Forming a Credit Card Application Strategy
… but the number of hard pulls will vary

For me, most banks pull Experian. This leaves my Equifax and TransUnion reports relatively inquiry free. Here’s where the strategy comes into play. If I know that I might get denied by a bank like Citi who also pulls Experian then I can start applying for credit cards at banks that pull one of the other two. For example, Barclays tends to pull TransUnion. They’re known for being sensitive to a lot of recent inquiries. While I may have opened a lot of credit cards recently, my list of inquiries on TransUnion remains short. This may increase my likelihood of being approved by Barclays. Another example of this is applying for business cards through Bank of America. While Bank of America pulls Experian for personal cards, they pull Equifax when I apply for a business card. They are the only bank that has pulled Equifax for me, so it’s easy to keep this report clean. Timing is also important with applications since some recently opened credit cards may not show up on your report immediately.

Final Thoughts

While this strategy may help in certain situations, some banks have recognized this loophole and created rules to circumvent it. Take the Chase 5/24 rule for example. Since new accounts will be reported on all three reports regardless of which report has the hard inquiry, Chase will not approve you if you’ve opened more than five credit cards in the past 24 months. Here’s hoping the other credit card issuers don’t catch on!

Last updated: April 13, 2017

 

 

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