In reviewing credit reports many consumers wonder why the information in the report differs from their own financial records. The answer is usually timing, although sometimes there may be errors. While checking credit reports frequently for accuracy is recommended, understanding when the credit report is updated and the elements in the report that can be changed is also important. For example, paying off a loan after a series of late payments will not make the late payment history disappear from the credit report; however, the loan balance will be adjusted.
The three credit reporting agencies, consisting of Experian, Equifax and TransUnion, obtain consumer information from credit card companies, banks and lenders. Creditors report consumer information to these agencies in exchange for fiscal performance reports on credit applicants. The three agencies are not affiliated with one another. They calculate credit scores differently, so you may have three different scores. Many lenders review all three agency scores when making credit decisions while some only look at one.
Opening New Accounts
Opening a new credit card account and getting a home or auto loan triggers an update to your credit file. The new lender sends the new account information to one or all of the credit bureaus. The information includes the lender's name, amount borrowed, current balance, type of account (fixed or revolving) and the current payment status. This new account typically appears on the credit report on the first month after the account is opened. Opening a new account or loan will lower a credit score slightly.
Timing of Updates
Creditors send account information to the credit bureaus around the end of the month for existing accounts. Statement closing dates dictate the timing of this transmission, so credit reports reflecting information that is a month old is possible. The information sent consists of current balances and late payment notices. If a change of address is submitted to the creditor by the consumer, the new address is passed to the credit bureaus as well. The credit bureaus update the credit reports within one week of receiving the information from creditors.
Credit reports typically do not reflect large fluctuations unless altered by foreclosures, bankruptcies or other large financial events. Staying current on payments and keeping balances low is the key to a high score. Over time the impact of late payments diminishes, which improves the score; however, the history remains on the report for seven years even after you have paid the debt. If you are trying to rebuild credit, ask if your new lender reports to all the credit agencies. Not all creditors report to the credit agencies, and some creditors only report to one or two. Find a credit card company that reports to all three agencies, and apply good credit habits to build a better credit score.
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