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A Secret Your Credit Reports Don’t Know

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If you’re like more than 200 million other consumers in the U.S., then you use a credit card.  And if you use a credit card, you run up a balance.  All of this, of course, is reported to the credit reporting agencies.  But what you do with your bill, well that’s another story.

The credit reporting system is not a real-time system.  So, when you swipe your card at the Gap, the Gap knows about it immediately, and your credit card issuer knows it immediately, but the credit bureaus don’t know about it for up to 30 days.  Why?  Because most creditors only report their information to the credit reporting agencies once a month.

For those of you who choose to pay off your credit cards in full, you’re what’s known as a “transactor.”  You use your cards for transactions, and then pay them off when the bill comes.  For those of you who pay less than the full balance, well you’re known as a “revolver.”  You choose to revolve a portion of your balance over to the next month.  But because creditors only report once a month to the credit bureaus, we can’t tell the difference between the two groups.

A revolver has a balance the following month because he doesn’t pay his bill in full.  A transactor also has a balance the following month because he uses his card while his statement waits to be paid, thus running up some amount of a new balance.  Even though he has paid his previous balance in full he gets a statement the following month and it’s the statement balance that’s reported to the credit reporting agencies.

Of course it would be very valuable to know if someone pays in full each month or simply rolls a balance over.  Interest is paid by one, but not the other.  One has the capacity to pay off his credit card balances, the other might not.  The revenue generated by one is significant, the revenue generated by the other is much less significant.  This is the type of information lenders want to know.  They’re just not going to get it from a credit report.

Image: iStockphoto

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