As we have discussed here before, the five factors of your FICO credit score are payment history, credit utilization, account age, credit mix and new credit. This is helpful information because knowing how these factors are used to calculate your credit score can put you one step ahead in the credit scoring game.
But some questions are not as easily answered, because they are not so cut and dried. Credit utilization is a case in point, especially when it comes to the actual reporting to the credit bureaus. Let’s look at this a little closer this week and see if we can make some sense out of a somewhat confusing topic.
When will your credit card issuer report to bureaus?
I am a patient man. Yet I am becoming spoiled by the speed of customer service offered by the tech companies. When I pay my cellphone bill using my phone, I get a confirmation before I can tap the big red button to end the call. I’m used to Amazon and Apple answering calls without having to hear how important my call is, but I still have to wait for the “next agent.”
So, if I can have stuff delivered in less than 24 hours, you would think that my credit file must be updated as soon as I make a charge or pay my credit card balance. If you did think that, you would be wrong. So when do they update credit reports? The problem with this question is that there is no set time frame for reporting.
This may seem strange to you. After all, there is no ambiguity in when your bill is due. The due date is clearly shown on your monthly statement and is something you must pay attention to if you are going to take care of the No. 1 factor in your FICO credit score, payment history. Paying your bills on time and as agreed is crucial to scoring the most points in this category. You have to know when the bill is due so you can make it on time.
That being said, does this mean the credit card companies have a set date for reporting to the credit bureaus? Unfortunately, it does not. But if you think about it, you can begin to understand why that is. Let’s say you have five credit cards. The chances of the due date for each card being the exact same date are pretty slim. One card may be due on the fourth of the month, another on the seventh, another on the 18th, another on the 22nd and the final one on the 27th. This can be true even with cards issued from the same company.
Many card issuers report shortly after the end of the billing cycle. This date will likely be several days or even weeks before your payment due date. This puts another wrinkle in the system because your billing cycle is tied to when you opened your credit card account. Those dates can be all over the map (or the month, as it were).
Add to that the fact that credit card issuers generally report every 30 to 45 days, but there aren’t set guidelines and each creditor can choose when to report and whether to report to one, two or all three bureaus. And they do just that—they decide for themselves when to report and to whom. You should also know that this reporting is voluntary; credit reporting is not mandated by law and some report less frequently than monthly while others do not report at all.
However, once they do report, the information is likely to show up on your credit report almost immediately.
How does it affect your credit utilization?
Credit utilization is a big factor—it makes up (30 percent) of your FICO score and is considered “extremely influential” to your VantageScore. Where this can make a huge difference is when you access a large amount of your available credit.
Let’s say you buy a big-ticket item using one of your credit cards. You know that the purchase is going to put you over the recommended 30 percent utilization rate, but your plan is to pay the purchase off when you get the bill (or at least pay a significant portion off to bring your utilization rate down). So far, so good.
However, if your credit card company, as many do, reports at the close of your billing cycle (after you make the purchase but before you make the payment), your score is going to be negatively affected until you make the payment and it is reported to the bureaus in the next billing cycle. This is because your purchase has affected your credit utilization in a negative way.
Of course, if you stick to your plan, this will be a temporary problem and your score will bounce back once the payment is made and reported. But if you need to access new credit in the meantime, this could be a problem for you.
Even if you don’t access new credit, others might look at your credit report while this factor is bringing your score down, like insurance providers or even potential employers or landlords. You have an explanation at the ready, but the chances of them asking and you being able to explain yourself are probably pretty slim.
Here’s a tip for those of you who, for any reason, want your card balance to be zero so your utilization factor is low and scores high—such as when completing a mortgage application or financing a car. Pay the full balance and put your card(s) in a drawer for the next month or billing cycle. At the end of the next month or cycle, the credit card issuer will report your zero balance to the bureaus and your utilization factor will award you with the most points available.
Is it important to know when your issuers report?
Knowing when your creditor(s) report to the credit bureaus could certainly be important in the above scenario. The problem is, you may not be able to pinpoint exactly when your credit card issuer will report. You can call and ask, and you might get an answer, but you also might not. Or the answer you get may change over time. This is why it is important to know where you are on your credit cards at all times so you can avoid these types of issues (or at least be prepared to see a temporary drop in your credit score).
I am not saying you can’t use a credit card to make a big-ticket purchase. There are times when it makes perfect sense to do just that, like if you have a cash back credit card. In addition, using a credit card offers strong consumer protections and may offer extended warranties, theft and damage protection and price protection that you don’t get if you pay in cash. Credit cards have a place in your financial life and can be a great tool if used wisely.
Why you should pay your balances in full and on time
Paying your balances off each month is a practice that will benefit you in more ways than just a healthy credit score. Your overall financial health will benefit because you will not be using credit to extend your income and will instead be living fully within your means. While I mentioned the 30 percent rule above, I personally believe you should keep all your credit cards at 25 percent or less at all times. And remember, people who enjoy the highest credit scores tend to have utilization rates in the single digits or even zero. This is a worthwhile measure to shoot for.
The bottom line
While you may be curious about the exact date your credit report gets updated by your credit card issuers, it is a moving target that may change every month based on your billing cycle. However, you can safeguard your credit score by paying attention to each of the factors that make up your credit score. While payment history and credit utilization make up the lion’s share, all are important. Knowing where you stand and having a solid plan to repay is your best defense.
Have a credit score question for Steve? Drop him a line at the Ask Bankrate Experts page.