How Banks Work With Credit Reporting Agencies

Written by Banks Editorial Team
3 min. read
Written by Banks Editorial Team
3 min. read

Understanding how banks work with credit reporting agencies is very important for your financial health. Your credit report has a lot to do with how you’ll be able to borrow money and what rates you’ll pay when you do. That’s because your history of borrowing – and paying back – money is one of the most influential guides to lenders on whether you’ll be able to meet your future obligations.

But exactly how banks use your credit report and what your credit score tells lenders can seem mysterious. Here’s an overview on how banks work with credit reporting agencies and what those agencies actually do.

Credit Score Apps

Experian Boost is a free service that allows you to add eligible, on-time payments to your credit report, potentially increasing your credit score.

What is Your Credit Report?

Your credit report exists to collect all the data about when you’ve opened a credit card or bank account, applied for a loan or made a payment. These are collected by credit reporting agencies. Four important types of information are detailed on your credit report:

  1. Your identification. This information includes your name, address, past addresses, birthdate, Social Security number and employment history. It helps to confirm that you’re really who you say you are.
  2. Credit accounts. This list includes things like mortgages and credit cards, not only from banks but also from stores. The account list notes the date you opened the account, any spending limits, the current balance and when you’ve made payments.
  3. Credit inquiries. If you apply for a car loan or department store credit card, that information is noted in your report. This section lists everyone who has asked to review your credit for the last two years.
  4. Collections and court documentation. If you have debt with a collection agency, that’s listed in this part of the report, as well as state and county court records that include bankruptcy and foreclosure information.

All the good and bad in your credit history is boiled down into one three-digit score, known as your FICO score. This number, which ranges from 300 to 850, tells potential lenders and banks at a glance what type of credit risk you might be. Higher numbers represent lower risk. In general, 750 and above is considered excellent credit, with 700-749 good and 650-699 fair. If your score is lower than 620, you may have trouble getting a mortgage or car loan, or you’ll pay higher interest rates to represent your potential risk of non-payment.

Three main credit reporting agencies -TransUnion, Equifax and Experian – all maintain credit reports on you. The three reports should be similar but may have small differences, including the FICO score. You have the right to request a copy of your credit report annually from each of the three credit reporting agencies. If there are mistakes on your report, there’s a process for requesting correction to each of the credit reporting agencies.

Credit Score Apps

Experian Boost is a free service that allows you to add eligible, on-time payments to your credit report, potentially increasing your credit score.

How Do Banks Work With Credit Reporting Agencies?

Financial institutions like banks interact with credit reporting agencies in two ways.

1. Reviewing Your Credit History

First, they use the information available on your credit report to make lending decisions. This can range from deciding whether to offer you a credit card with a good interest rate to whether to offer you a home mortgage. Some information on your credit report can be more damaging than others. A mortgage lender might balk at approving your application if you have past foreclosures, but could be more tolerant of a skipped payment on a department store credit card.

If a lender is concerned about your history, do make a point of reviewing your report for any inaccuracies. Mistakes can happen, and correcting any erroneous data could make you look like a much better credit risk.

2. Reporting Your Account Information

Most banks value the information on credit reports and will provide information on how you’re managing your accounts with them. The main reason why lenders agree to do this is as a means of recourse if you don’t pay them. The threat of a “ding” on your credit report that could influence everything from the price you pay for car insurance to whether you can refinance your home next year carries some weight. It’s one more tool in addition to things like late fees that lenders can use to compel you to pay back the money you owe.

But if the banks don’t report the good, they can’t report the bad, so they maintain regular reporting to the credit bureaus to help keep you on track with your payments. Most lenders send monthly updates to the credit reporting agencies, usually shortly after your statement date or payment date.

Sometimes, banks won’t report your successful payments, which can be an issue if you’re trying to build or repair credit. Unfortunately, you don’t have the ability to force a lender to report to credit agencies, though you can ask them to. You can always pay off and close accounts with non-reporting financial institutions if having the account is not helping you with the goal of building your credit.

Should You Monitor Your Credit Report?

With the prevalence of financial tools that can help you stay up to date with the information on your credit report, there’s no reason not to. You can request a copy of your report from each of the three credit reporting agencies each year or if you’re denied credit. But in addition to reviewing the in-depth reports, you might consider subscribing to a service that lets you know each month about changes to your credit report. Free services are also available, though these may not be as detailed.

Problems on your credit report can also be an early sign of identity theft. You should check your details to ensure there are no accounts in your name that you did not open. Taking steps to correct fraudulent accounts in your name is easiest if you do it quickly; otherwise, unpaid accounts could go to collections and require significantly more time to correct.

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