If you’ve ever applied for a credit card or bank account, a financial institution has almost certainly asked for your social security number.
The reason they ask for this is to verify your identity, but there is a second reason—they are obtaining a copy of your credit report so they can examine your financial history.
Today, we’ll be discussing how credit reports work, who reports to them, and how often banks such as Capital One report to them. We’ll also talk about how to rebuild credit after collections and other negative items have appeared on your credit report.
For most Americans, credit reports are a murky write-up that somehow affects all aspects of our financial lives. In the United States, there are three primary credit reporting bureaus—Experian, Equifax, and Transunion. You may be wondering which credit bureau is the most important, but in reality, they are all equally important.
Each time you open an account that is related to a loan or credit card, financial institutions begin reporting the status of that account to the credit bureaus. Other items that may appear on a credit report include negative items such as collections accounts and bankruptcies. Furthermore, missing payments by more than thirty days on a loan or a credit card will show up on a credit report.
Based on the items listed on your credit report and the amounts owed, the credit reporting bureaus will assign you a credit score somewhere between 300 and 850. The higher your credit score, the better.
So long as you pay your bills on time, don’t max out your credit cards, and aren’t frequently opening and closing accounts, your credit score should slowly rise over time. Most lenders look for a credit score in the mid 600s to feel comfortable offering loans or other credit services to a client. Lower scores may be accepted, but they typically come with much higher interest rates.
On the other side of the coin, having a high credit score all but guarantees approval as long as you have a stable income history. Additionally, having a high credit score can allow you to get some of the lowest interest rates available. 1% lower interest may not sound like much, but having a one percent lower interest rate on a $200,000 thirty-year mortgage will save you over $40,000 by the time the loan is paid off.
Whether you have a credit card with a major financial institution such as Capital One or your local credit union, the answer is typically the same—once a month. Some banks may report more or less frequently, but most simply report to the credit bureaus each month when they’ve completed your monthly statement and added up the current total balance.
Now, you’re probably wondering, if I pay my bills on time, why do they report to the credit bureaus? The answer is because the credit bureaus consider how much of your available credit lines you are using as part of their credit score calculation. If the credit bureaus see that you are maxing out your credit cards, they may start to consider you to be in financial trouble and in danger of missing future payments.
Credit repair companies can assist you by having inaccurate, negative information removed from your credit report. By removing these items, your credit score will rise. Additionally, credit repair companies can provide advice and counseling on how to improve your credit by utilizing other tactics such as making sure you have an optimal mix of credit types.
If you want to learn more about managing credit, specifically after bankruptcy, check out our post on how to know when your Chapter 13 is over.
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