When it comes to managing your credit, there are a lot of elements to take into account. While you probably know the basics, like how late payments drag down your credit score, there are some nuances in the process that are less well-known but can still affect your financial picture. Here are some issues that you will want to know about, especially if you are trying to repair your credit or about to make a major purchase and need your credit to be in tip-top shape.
The Reporting Cycle
The first has to do with making payments in full. Because you use your credit card throughout a monthly cycle, your actual credit balance with any particular card will likely never be $0. And it’s the balance on your account (on whatever day the credit card company chooses to make its report) that is sent to the credit bureaus. So while you might be paying off your full balance every month, that doesn’t mean your credit score is going to reflect a zero balance.
What this means in real terms is that you need to avoid using too much credit, so that the balance you have at any point in the month looks reasonable to the bureaus. If there’s a particular time coming up when you want to make sure your credit looks good, contact the card companies to ask when they send data to the bureaus, or sign up for credit monitoring, which will show you what information is being sent each month. It might also be in your best interest to dial back your spending for a couple of months in preparation for your big purchase.
Why Credit Reports Differ
The second issue has to do with the different credit reports available. Those reports are not likely to be identical, because lenders are not required to report to all three credit bureaus that produce them. In fact, they aren’t required to report to any of the bureaus. Additionally, those bureaus tend to use different algorithms (a fancy word for computer programs) to compute your credit score, meaning that each report may be slightly different.
This is why it’s important to keep tabs on all three credit reports. If one is particularly low in comparison with the others, see if there is data that could be missing, and dispute any information that needs to be updated.
Your Credit Score Is Dependent on the Weakest Report
It’s also important to keep tabs on all three reports because lenders know about the differences in credit reports, too. This means that, for a major loan, they are probably going to pull all three reports—and their internal policies could require that two or even all three reports match a certain cutoff point in order for you to be approved.
Also remember that if you’re taking out a loan with a co-applicant, such as a spouse or other family member, their own credit scores are also going to be factored into the lender’s equation. If the other person’s report is weaker than yours, it could derail your entire application. This means that it’s a good idea to make sure they are doing whatever is needed to repair their own credit prior to approaching the lender.
The good news is that if you or your co-applicant needs assistance with credit repair, there are credit agencies such as Ovation that can help ensure your credit passes muster when it’s time to apply for that loan. Contact us today to see how we can help.