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3 Things You Didn’t Know About Your Credit

BLOG---3-Things-You-Didn't-Know-About-Your-Credit-v1Understanding your full credit picture is usually a learning process. One category of common confusion is the why, what and how surrounding your three credit reports. If you don’t understand how all three of your credit reports affect your financial health, you might be facing some surprises next time you apply for a loan. Here are three things you should know:


#1.Your credit reports are fraternal

Your credit reports aren’t identical triplets. In fact, the information on each report may vary greatly. That’s because lenders aren’t required to report to all three bureaus—or any bureaus for that matter. Plus, each bureau processes data differently, so the information reported could vary. For example, a small local lender may only report the credit obligation to one of the three credit bureaus. Depending on the information reported, the score associated with that bureau could be affected—making it substantially different from the other two. This may become a problem when you’re applying for new credit or a new loan. Which FICO® Score and credit report will your new lender pull?



The solution is simple. Review all three of your credit reports periodically. If you notice a problematic difference between reports, you can contact your lender and request they provide the other bureaus with your updated information. You can also contact the bureaus and dispute information on your report that may need updating.



#2. Just because you pay in full doesn’t mean it’s reported

Many consumers prefer to use credit cards to earn rewards and then automatically pay off the balance every month when the statement closes. That’s a great way to responsibly manage your credit, but if you’re thinking your lender is reporting a $0 balance every month, you might be wrong.



Lenders typically report your account performance to the credit bureaus once a month—but not necessarily at the time when you pay you bill.  Consider this: by the 15th of the month, you’ve used your credit card to make $500 worth of purchases. You have automatic payments set up to pay the balance in full on the closing date, but your credit card company reports your account information to the bureaus on the 20th of every month. That means the $500 balance shows up on your credit report—not the $0 balance. This gets sticky when you consider your FICO® Score. If your credit utilization is high every month and it’s reported to the bureaus, your FICO Score could decrease.



Your best option is to avoid using too much credit. If you’re really concerned about having a $0 reported, contact your lender and see if you can find out when they report account data to the credit bureaus. Alternatively, if you sign up for credit monitoring, you’ll be alerted when this data is reported and thus be able to determine an approximate reporting date (just be sure to consider tip #1, above). Depending on the lender, you may be able to set up your automatic payments to process on a date before the balance is reported to the credit bureaus.



# 3. You’re only as strong as your weakest link

Some lenders, especially mortgage lenders, evaluate one or more of your FICO® Scores in the credit review process. If a lender pulls all three, they may require that all three scores pass their score cutoff. Alternatively, they may take the middle of the three scores and require that it pass their score cutoff criteria.  What this means to you is that even if one of your FICO Scores is high, you could still be affected by the lower scores.  The lender’s score cutoff criteria could put you into a different interest rate or possibly result in a denied credit decision.



When applying for a mortgage with a co-applicant (such as a spouse), lenders will mostly likely pull all three FICO Scores on all applicants. They may require that all the scores pass their score cutoff criteria—that means your co-applicant’s low credit scores could push you below the cutoff criteria.  If your FICO Score is higher than your spouse’s, great—but it may not mean “instant approval”.  Make sure your spouse or partner is paying as much attention to his/her FICO Scores and credit reports as you are. If you find that one or more of your collective FICO Scores are low, consider waiting until you’ve had a chance to bring those scores up the scale.



Any of these facts surprise you? If not, tell us in the comment section what credit report mysteries you’d like us to explain.



Kelsey Havens is a financial health enthusiast, consumer protection advocate and Content Manager at myFICO.

About Kelsey Havens

Kelsey Havens is a writer, financial health enthusiast, consumer protection advocate and Content Manager at myFICO. Connect with her on Google Plus: +KelseyHavens

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