You may not know this, but the credit reporting system is indeed made up of three, not two, main players: consumers, banks/financial companies and credit bureaus. Information about your credit card and loan accounts is reported electronically to the three national credit bureaus by each of your creditors about every 30 days. These three bureaus are: TransUnion, Equifax, and Experian. They collect and store your credit information for future use and reference, and are a key player in the credit card system.
The three national credit bureaus don’t share information with each other. Your credit reports from TransUnion, Equifax, and Experian can contain significantly different information about you. It’s important to monitor all three reports because you can never be sure which one will be used when you apply for a new account.
Businesses such as auto lenders, banks, credit card companies, and insurance agencies use your credit data from the credit bureaus to determine how risky of a customer you are. The lower the risk, the lower the rates you will have to pay. They of course also use this information to send you pre-approved offers in the mail.
On the other hand, not all creditors will report your account information to the credit bureaus. While businesses are legally required to report accurate information, there is no law that says they have to report at all. While nearly every major creditor reports to all three bureaus, smaller lenders and banks may not send your monthly account information to all three or any of the credit bureaus.
Along with your credit card and loan account records, your name, address, employer, and recent applications are recorded in your credit files. Public records such as bankruptcies, tax liens, and judgments can also appear on your reports. Information about your income, race, checking accounts, gender, age, religion, or health is not included on credit reports. Most information expires from your credit reports after 7-10 years.
If there is something inaccurate on your credit reports you can file a dispute to have it removed from your record. For detailed information and to find out how to order a free credit report from each of the three credit bureaus, click
here. It’s important to keep the information on your credit reports positive and accurate. The data in your credit files is used to calculate your credit score. This three digit score is a numerical representation that indicates how risky a borrower you are from a lender’s perspective. A higher credit score (700+) will get you the best deals on big purchases. Find out what Is A good FICO score range is
here.
Credit Card Balance
Remember the term 'revolving credit'? Well, with it you can repay as much or as little as you want to your credit card company at any point. But most importantly, you can often avoid paying any interest at all if you repay the total amount you have borrowed on the date when the first repayment is due (usually at the end of the month). This is referred to as "not carrying a balance."
As long as you pay the whole balance on your statement before it’s due, you won’t accrue any interest. No interest = no cost to you (unless there’s an annual fee, which you should stay away from). Credit card companies however do make a bit of money off you even still – they get a small percentage of the money you pay at the store from the merchant that processes your transaction.
Regarding credit card usage, the sword cuts both ways, as the saying goes. The same applies to credit: it can be a tool or a trap, depending on how it’s handled. Used well, credit can be an asset to help build wealth as part of a financial plan using the concept of leveraged capital; used poorly, credit can lead to excessive debt, which can quickly consume an individual’s finances and have them hitting rock-bottom. As with any tool, credit must be used carefully and with caution.