Why Your Credit Report Will Never Be Right
By Stephen Snyder
You're getting ready to make a major purchase on and want to get the lowest interest rate possible. You know that paying down your cards will increase your scores.
So that's what you do.
You collect all your recent card statements. Verify each balance owed. And grab your checkbook.
But then you think, "I want these payments to post as soon as possible." So you look at your different lenders to determine the fastest way they will accept your payments.
For some, it makes more sense to pay by phone—so you phone in your payments. Others, you pay over the web. And for the ones you must send a check by mail—you use FedEx®—so your payment arrives as soon as possible. You think, "Now I'll really see results fast!"
Or will you?
You've significantly reduced the balances on all of your cards. Two weeks go by. (Enough time for the lender to receive your payment and post it to your account, right?) You call each lender to verify they received your payment. They did.
So far, so good.
Now...the moment you've been waiting for. You go to your computer and type in www.myfico.com/12 to purchase your new FICO scores. You type in your card information, press "purchase," and await your new and improved FICO scores. Visions of your new car, new home, increased card limit, or small business loan dance in your head.
Your FICO scores appear on the computer monitor...
Nothing's changed...your scores are the same. What happened?
You have become a victim of "credit reporting lag time"
Although you significantly paid down the balances on your cards for the right reason (to improve your scores so you could obtain better terms at the lowest possible interest rates), you won't see the effect on your reports for 30 to 60 days—and in some cases even longer.
To make things even more frustrating, if you decide to use your cards during the 30 to 60 day time period after you paid down your balances, your card accounts will post with the new balances you charged during that time period.
Your reports will never show a $0 balance even if you pay them in full each month
This occurs on auto loans, mortgages, student loans and any other accounts where you make a monthly payment to a creditor who reports that account to the reporting agencies.
So the only way to truly accomplish your goal of obtaining $0 balances on all of your cards would be to pay them off and not use them for up to 60 days, then purchase your FICO scores after that time to see any increase in your scores.
Here are the two fatal flaws in the scoring system
1.The time it takes lenders to report changes in your account to the three national reporting agencies.
2.The amount of time it takes the reporting agencies to make those changes.
First, understand that FICO scoring is dynamic. Your FICO scores change any time information on your reports change.
Here's how it works...
A new FICO score is calculated every time your reports are purchased, whether it's by you or a lender. Your new score is based on the most current information received by the three national reporting agencies (i.e., Equifax®, TransUniontrade; & Experian®). In a perfect world—lenders would report your payments the moment you paid them and the reporting agencies would accept their updates instantly.
In this perfect world—our FICO scores would be based on the real-time, "up-to-date" information on our reports, and our scores would be true and accurate calculations based on our as of that second.
It's interesting that I can go fill my tank full of gas (a pretty expensive purchase these days—we're up to $3.19 a gallon here in Indiana!) and within seconds of swiping my gas card the lender adjusts my balance and available limit based on that recent purchase, and everything is recorded in the lender's master file.
But it takes that same lender 30 to 60 days (sometimes longer) to report that information to the three national reporting agencies.
There is no law stating that your lenders must report your payments That's right. Lenders don't have to report your payment history at all. There is no law that says they must. The reporting system in America is voluntary.
So what's the work-around?
There isn't one, per se.
You just need to know how the system works. This is why, if you've ever seen me at one of our seminars, I always stress to make sure that all your lenders report to the reporting agencies. The only way to make sure a lender reports to all three agencies is to ask—and then check your reports to make sure.
What to do before you apply for credit
Begin the following process 60 days before
making a major purchase using credit:
1.Check to make sure your lenders report to all three of the reporting agencies. You can get your free reports at www.annualcreditreport.com
2.Identify the lenders that do report. These are the ones that you want to pay off (or pay down) as soon as possible.
3.Then, if possible, don't use your cards for the next 30 to 60 days (the time period it takes most lenders to report your payments to the reporting agencies).
4.Don't apply for or increases during that same time period. inquiries lower your scores.
5.When you reach that 60-day mark...purchase your FICO scores again at www.myfico.com/12 (inquiries from this site will not lower your scores).
6.Apply for if your scores are high enough to get you approved for the you seek.
To speed things up—consider a service that monitors all three of your reports. When you use a monitoring service, instead of you having to constantly monitor your reports, the service monitors your reports for you—and you'll know exactly when something changes on your reports. This way, you'll avoid playing the extended waiting game.
Article Source: http://www.articles-galore.com
Stephen Snyder is the founder of the After Bankruptcy Foundation a non-profit organization that provides free bankruptcy information and recovery steps. Stephen also writes a free weekly newsletter on bankruptcy recovery.
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