If you plan to apply for a loan, interview for a job or rent an apartment anytime soon, you want your credit to be in the best possible shape. There are many ways to give…
If you plan to apply for a loan, interview for a job or rent an apartment anytime soon, you want your credit to be in the best possible shape. There are many ways to give it a boost, from paying down debts to paying bills on time, but that good behavior may not be reflected in your credit score until the three major credit reporting agencies — Equifax, Experian and TransUnion — update your credit file. Here’s a look at when your credit data gets reported and why that might be important.
How Often Does Your Credit Information Get Reported?
Many creditors regularly send information to the credit bureaus, but how frequently they do it can vary.
“At a minimum, lenders are asked to report to [credit] reporting agencies on a monthly basis,” says David Blumberg, senior director of public relations, U.S. and international at TransUnion. He notes that while monthly reporting is the industry standard, some lenders offer additional updates throughout the month. This is most likely when they have material changes to report, such as the payoff or closure of an account, he says.
Rod Griffin, director of consumer education and awareness at Experian, says some lenders divide their portfolios into thirds — reporting at the beginning, middle and end of the month. Others may update throughout the month.
“People sometimes think everybody updates on the last day of the month,” he says. “That’s not true.”
However, most consumers can expect that lenders will send their account information shortly after a statement closing date. “If your statement date is at the end of the month, it probably will be updated very near that time,” Griffin says. “If your statement date is at the first of the month, it would be shortly after that.”
The information that creditors submit may include:
— Identifying information, such as your name, address, birthday and Social Security number.
Once a credit reporting agency receives the new information, it typically is factored into the consumer’s credit report in short order. Twenty years ago, lenders sent information to the credit reporting agencies on magnetic tapes, Griffin says. That slowed down the updating process.
Today, the information is sent electronically in encrypted form. “So, we’re able to update that information very quickly,” he says.
When Does Timing Matter?
If you’re planning to apply for a loan or credit soon and you want to take steps to put yourself in a strong position, it may be important to consider when your credit reports are updated.
For example, if you want to get your credit card balance down to $0 right before you apply for a loan, the best approach is to pay down your debt entirely and not use the card for at least 30 days — or possibly longer. As Experian notes on its website, to make certain that your account shows a zero balance, “you must pay off any existing balance and then not make any charges for a full billing cycle.”
If your balance is zero for several weeks but you then make a charge right before a credit reporting agency updates its files, your balance will not appear as zero when you want it to.
Monitoring Your Credit
That said, if you’re planning to apply for a loan, it’s best to start tracking your credit well ahead of time. “I always recommend you get your credit report at least three months in advance, if not six,” Griffin says. “The sooner, the better.”
Every American is entitled to one free annual credit report from each of the three major credit reporting agencies. You can order your copy at AnnualCreditReport.com. Griffin notes that reading a credit report and spotting errors is easier than it might sound. “It’s very easy to read — it’s very clear, you don’t have to have any special training,” he says.
If you spot inaccuracies, dispute them as quickly as possible. “Never be shy about disputing information,” Griffin says. “You can do that at no cost.”
Each of the three major credit reporting agencies allows you report inaccurate or fraudulent activity online:
Also, get a copy of your credit score, which is based off information from your credit report. The FICO score is the most commonly used credit measure, and you can purchase yours on FICO’s website. Although federal law does not mandate that this score be made available to you for free, many banks, credit card issuers and others offer the score for free to customers. The free credit score you receive via your bank or credit card issuer might not be a FICO score, but might be an educational score, which can at least help you see what range you fall into.
Even if you don’t have a big transaction on the horizon, it is wise to monitor your credit reports for any changes on an ongoing basis. That way, you can spot both mistakes and outright fraudulent activity on your report. “I always encourage people to get their credit report at least once a year,” Griffin says.
Blumberg suggests going even further. “People who’d like to see how lenders are reporting information about them should consider a credit-monitoring service,” he says. All three of the major credit reporting agencies offer at least one form of credit monitoring:
— TransUnion offers a free service called TrueIdentity that helps consumers track their TransUnion credit files and the information contained within them. It also alerts you any time someone tries to open an account in your name.
— Experian offers CreditWorks. Among other things, it checks your Equifax, Experian and TransUnion credit reports daily and alerts you to any key changes. It also offers unlimited access to your credit reports. The service costs $4.99 for the first month and $24.99 thereafter.
— Equifax Complete Premier alerts you to key changes in your credit files at the three main bureaus as well as your Equifax credit score. It costs $19.95 a month and is just one Equifax product that offers this perk.
Getting Your Credit Into Tip-Top Shape
If you want to improve your credit as quickly as possible, so that it shines when you need it to, here are some tips:
Pay your bills on time. This is the most important action you can take, Blumberg says. “It’s the best way to help your credit report reflect responsible borrowing behavior.” Making payments on time is so crucial that the Consumer Financial Protection Bureau recommends setting up electronic reminders or automatic payments so you do not fall behind.
Pay down your balances. Minimizing your credit card balance will help improve your credit utilization ratio, which is the amount of credit you are using compared with the overall amount available to you. Griffin says paying down your balance “will almost always help your credit scores.” Just be aware that your credit report will not show the new balance until the next time your report is updated.
Avoid running up high levels of debt. The more debt you carry, the lower your credit score is likely to be. Experts recommend keeping the amount of credit you use at no more than 30 percent of the credit that is available to you.
Don’t apply for new credit. Keeping your credit stable — and not rocking the boat — is important in the time building up to a new loan application. “Taking on a lot of debt could work against you,” Griffin says. Borrowers who take on a lot of new credit raise a red flag that their economic circumstances have changed for the worse. This can hurt your credit score.
Hold off closing out unused credit accounts. Ironically, closing out accounts you no longer use can hurt your credit score. That is because every time you close an account, the amount of credit available to you drops, which increases your credit utilization ratio and hurts your score.