Make sure your payments are getting reported
By Dana Dratch • Bankrate.com

Rebuilding bad credit is like climbing up a tall ladder: Take it one step at a time and don't look down.

One of the most effective methods for repairing credit is racking up a good payment history. If you already have a mortgage or credit cards, you should keep making those timely payments and reducing those balances. If you don't have any credit, you might take out a card or small loan to show you can handle the payments. But there's a potential glitch: Not every lender reports to the credit bureaus.

"There is a recognition that the credit score is becoming the number that is the key to all kinds of things," says Jean Ann Fox, director of consumer protection for the Consumer Federation of America. These days, whether you're trying to get a loan, a job or a security clearance, chances are someone will be viewing your credit score. "But all of this is built on a system where no one is required to report your payment history," she says.

Checking up on lenders is yet one more good reason to pull that free copy of your credit report, says Lewis Mandell, professor of finance and managerial economics at the State University of New York at Buffalo. Besides looking for mistakes, consumers can also note "underreporting by creditors with whom they have a pretty good record."

When you're loan shopping and already comparing APRs, adjustable rates versus fixed and who has the better deal on points and fees, a lender's reporting practice can seem pretty insignificant.

But it's one more detail that can save you a lot of money.

"It's a real thing," says Matthew Lee, executive director of Inner City Press/Fair Finance Watch, a consumer, community and civil rights organization. "It's something they need to ask the lender."

If you're taking out a subprime mortgage, chances are whatever credit problems you've had will be resolved well before the loan matures. So you're probably planning to refinance at a better rate in a few years. But without some favorable credit history your credit score won't improve and you won't get that favorable rate.

Does your lender report?

Credit reporting is strictly voluntary."It seems like basic fairness that if you pay on time, it should go into your credit history," Lee says.

But no lender is required to report a transaction to any of the credit bureaus. And some will choose to report to one or two, rather than all three.

If you get your loan from a major brand-name lender, the odds are good they will report it, says Lee.

But there are some subprime lenders who still aren't reporting, says Norma Garcia, senior attorney with Consumers Union. "We've talked to numerous consumers who have said they've paid on time, but it never appears," she says. "As long as the person doesn't have a positive payment history to bring up the score, they re always going to be subprime."

"It's gotten better in some portions of the industry," says Lee. But many times smaller lenders "generally fly under the radar."

And some of the secured credit cards that market themselves to subprime customers as tools to rebuild credit don't report to the credit bureaus at all, says Barry Paperno, manager of customer service for Fair Isaac Corp., which devised the credit score.

Whenever you're shopping for a subprime loan, put the reporting question on your criteria list. Ask to which of the three bureaus does the institution report? (Ideally, you want them talking to all three.) How often do they make a notation? And what information would they include for a loan like yours? If you've recently done business with a creditor, check your own report and see how that loan is recorded.