Understanding how banks work with credit reporting agencies is very important for your financial health. Your credit report has a lot to do with how you’ll be able to borrow money and what rates you’ll pay when you do. That’s because your history of borrowing – and paying back – money is one of the most influential guides to lenders on whether you’ll be able to meet your future obligations.
However, exactly how banks use your credit report and what your credit score tells lenders can seem mysterious. Here’s an overview of how banks work with credit reporting agencies and what those agencies actually do.
What is a Credit Report?
Your credit report exists to collect all the data about when you’ve opened a credit card or bank account, applied for a loan or made a payment. These are collected by credit reporting agencies. Four important types of information are detailed on your credit report:
- Your identification. This information includes your name, address, past addresses, birthdate, Social Security number and employment history. It helps to confirm that you’re really who you say you are.
- Credit accounts. This list includes things like mortgages and credit cards, not only from banks but also from stores. The account list notes the date you opened the account, any spending limits, the current balance and when you’ve made payments.
- Credit inquiries. If you apply for a car loan or department store credit card, that information is noted in your report. This section lists everyone who has asked to review your credit for the last two years.
- Collections and court documentation. If you have debt with a collection agency, that’s listed in this part of the report, as well as state and county court records that include bankruptcy and foreclosure information.
All the good and bad in your credit history is boiled down into one three-digit score, known as your FICO score. This number, which ranges from 300 to 850, tells potential lenders and banks at a glance what type of credit risk you might be. Higher numbers represent lower risk. In general, 750 and above is considered excellent credit, with 700-749 good and 650-699 fair. If your score is lower than 620, you may have trouble getting a mortgage or car loan, or you’ll pay higher interest rates to represent your potential risk of non-payment.
Three main credit reporting agencies -TransUnion, Equifax, and Experian – maintain your credit reports. The three reports should be similar but may have small differences, including the FICO score. You have the right to request a copy of your credit report annually from each of the three credit reporting agencies. If there are mistakes on your report, there’s a process for requesting correction from each of the credit reporting agencies.
How Do Banks Work With Credit Reporting Agencies?
Financial institutions like banks interact with credit reporting agencies in two ways.
1. Reviewing Your Credit History
First, they use the information available on your credit report to make lending decisions. This can range from deciding whether to offer you a credit card with a good interest rate to whether to offer you a home mortgage. Some information on your credit report can be more damaging than others. A mortgage lender might balk at approving your application if you have past foreclosures but could be more tolerant of a skipped payment on a department store credit card.
If a lender is concerned about your history, do make a point of reviewing your report for any inaccuracies. Mistakes can happen, and correcting any erroneous data could make you look like a much better credit risk.
2. Reporting Your Account Information
Most banks value the information on credit reports and will provide information on how you’re managing your accounts with them. The main reason why lenders agree to do this is as a means of recourse if you don’t pay them. The threat of a “ding” on your credit report that could influence everything from the price you pay for car insurance to whether you can refinance your home next year carries some weight. It’s one more tool in addition to things like late fees that lenders can use to compel you to pay back the money you owe.
But if the banks don’t report the good, they can’t report the bad, so they maintain regular reporting to the credit bureaus to help keep you on track with your payments. Most lenders send monthly updates to the credit reporting agencies, usually shortly after your statement date or payment date.
Sometimes, banks won’t report your successful payments, which can be an issue if you’re trying to build or repair credit. Unfortunately, you don’t have the ability to force a lender to report to credit agencies, though you can ask them to. You can always pay off and close accounts with non-reporting financial institutions if having the account is not helping you with the goal of building your credit.
The Importance of Credit Reporting
Creditors want to make sure that you can make on-time payments if they give you a loan or a line of credit. These institutions use your credit report to assess your payment history and if you can make regular payments for another financial obligation.
Credit card issuers, lenders, and other entities turn to credit reports to gauge if a consumer can cover payments for a financial product.
When Do Credit Card Companies and Banks Report to Credit Bureaus?
Banks and credit card companies report to credit bureaus every 30-45 days. They may report you to credit bureaus at any time of the month based on recent payments and financial obligations.
Factors That Determine Reporting Times
While banks and credit card companies will report your activity to the credit bureaus, they don’t report at the same time. These are some of the factors that influence when your information gets reported.
Bank Policies
Some banks have a policy to report your activity to the major credit bureaus at the end of each month, while others may decide to send information on the 15th of each month.
Type of Account or Loan
Some accounts are quickly reported to the major credit breaks, while it may take a little longer for other activities to show up on your credit report. For instance, financial institutions may view an application for a new credit card differently from a late payment on an auto loan.
Statement Cycles
Many banks and credit card issuers have 30-day statement cycles. The day a cycle ends impacts the due date for the monthly minimum payment. Credit bureaus usually receive information from a bank, credit union, or credit card issuer at the end of each statement cycle.
Payment Due Dates
Some financial institutions give you a 21-day grace period to catch up on a payment before reporting it to the major credit bureaus. However, others may report your missed payment as soon as the deadline passes.
How Often Do Banks Report to Credit Bureaus
Most banks follow one of these three reporting schedules to ensure credit bureaus have updated information about your credit card balances.
Monthly Reporting
It’s common for banks to report your information once per month. This frequency ensures a more frequent stream of credit score updates so you know where you currently stand.
Quarterly Reporting
Some banks report to the major credit bureaus on a quarterly basis. This approach saves time and offers a comprehensive report every quarter.
Event-Driven Reporting
Some financial institutions wait for you to take out a loan, make on-time payments, or fall behind your deadlines before reporting to the major credit bureaus. While this approach can still result in monthly reporting, it can take a while for banks to report your latest information if you aren’t as active.
Are There Delays in Reporting?
It’s possible for a delay to take place when a bank reports your latest information to the major credit bureaus. These are some of the scenarios to consider.
Reasons for Delays
- Something looks out of place, and the credit bureau attempts to verify it
- You are using a platform that only updates your credit score once per week
- Regular delay time between a lender and the major credit bureaus
Impact on Credit Scores
Delays do not have any impact on your credit report. The information that’s already on your report will remain the same. However, any events that should positively or negatively impact your credit score should take a few days or weeks to show up due to a delay.
Other Special Considerations
These are some of the other details to keep in mind when banks and credit card companies report to the major credit bureaus.
Late Payments
It’s possible to make a late payment within the grace period and have it removed from your credit report. You can also consider calling the bank or credit card issuer to see if they will remove your late payment. Some companies may fulfill your request if you can demonstrate significant financial hardship or if you have regularly made on-time payments.
Account Updates
Lenders may provide new information when you make an on-time payment, prompting another update to your credit report. Some financial institutions report updates right away, while others wait until the end of the 30-day cycle.
Errors and Disputes
If you see inaccurate items on your credit report, you can file a dispute to correct the error. The credit bureau with which you file a dispute will temporarily remove the negative item from your report. It will remain permanently removed from your report if it’s deemed to be an error. Presenting documentation that verifies the errors will increase the likelihood of a positive outcome. Addressing these issues is essential for maintaining your financial health.
Should You Monitor Your Credit Report?
With the prevalence of financial tools that can help you stay up to date with the information on your credit report, there’s no reason not to. You can request a copy of your report from each of the three credit reporting agencies each year or if you’re denied credit. However, in addition to reviewing the in-depth reports, you might consider subscribing to a service that lets you know each month about changes to your credit report. Free services are also available, though these may not be as detailed.
Problems on your credit report can also be an early sign of identity theft. You should check your details to ensure there are no accounts in your name that you did not open. Taking steps to correct fraudulent accounts in your name is easiest if you do it quickly; otherwise, unpaid accounts could go to collections and require significantly more time to correct.
