How Credit Bureau Reporting Works

You paid off a big loan last week but when a new lender runs your credit report, it still shows a large balance on your old loan.

That can be really frustrating, especially if you were counting on that payoff to give your credit score a boost for a lower interest rate.

Many consumers believe the minute they pay off a loan, the creditor immediately reports the payment to one or all of the credit bureaus (Equifax, Experian, and TransUnion).

This is not the case. Most creditors submit this data once a month via a secure, encrypted data file with payment, payoff, and delinquency information on all the loans they have on file. The process is secure and regulated by the credit bureaus, and creditors cannot change or alter the process to accommodate an individual request for a credit bureau update.

Hanscom Federal Credit Union sends its secure, encrypted data file to the credit bureaus on the first business day of a new month. This file contains transactions and delinquencies from the previous month up through its last business day.

As an example, if you paid off your loan with us by the end of the business day of Friday, April 30 this year (the last business day of the month), your payoff would have been included in the data file that was sent to the credit bureaus the following Monday, May 3 (the first business day of the following month). However, if you had made your payment on Saturday, May 1, that payment would have missed the month-end closing and, instead, be included in the data file that was sent out on Wednesday, June 1, resulting in a month of waiting for your credit report to reflect the payoff.

Here are three things you can do to prevent this situation from happening or, barring that, remedy it:

• If at all possible, ask the creditor when they report to credit bureaus and schedule your payoff in time to be included in the next data run. Most financial institutions are happy to give you this information so you can plan ahead, especially if they know you're in the market for a new loan or mortgage. A good rule of thumb is to pay off any major balances at least two months before you apply for a new loan like a mortgage, refinance, or HELOC. It also pays to get a copy of your credit report before you apply for a loan so you can avoid a surprise when your new creditor pulls your report.
• If you made your payment but are not confident it'll be reported to the credit bureau in time, ask your old creditor to provide you with a letter stating the debt has been paid in full. Many financial institutions will accept letters like this. The drawback is that you'll still have to wait for your payment information to appear on your credit report, but if you're in a hurry for a loan, it can be a good solution.
• You can open a dispute with the credit bureau. Here's how you would go about this:
  
  1. You would go to the website for each of the three bureaus above and submit a consumer dispute. You must file a dispute with all three credit bureaus.
  2. The dispute would be for the balance of your obligation, stating it is a $0.00 balance.
  3. The three bureaus will then securely transmit the dispute to the creditor off-cycle. The creditor will respond with confirmation of the balance at the time the dispute is received.
  4. This transmission is then sent back securely to the three bureaus and the creditor's response is updated by the bureaus upon receipt.

And here's the rub: even if the payment is recorded, there's no guarantee it will affect your credit score in time to get a better rate on your new loan. In fact, your credit score may not change much at all. Although paying off a balance usually has a beneficial effect on your score, there could be negative factors impacting it too, such as a delinquent payment on another account or new credit inquiries.

The best way to avoid nasty surprises is to pay your bills on time, keep your credit utilization on all accounts low (under 30%, but even lower is better), and check your credit report and make sure any errors or omissions are corrected before applying for a mortgage, refinance, or Home Equity Line of Credit (HELOC).

Before you apply for any kind of loan, you should check your credit report first. You can do this for free at Hanscom FCU, as well as get your credit score^†. Our credit experts can show you what to look for on your report, as well as offer you specific, actionable tips to help you boost your score so you can get into your new home or car at a lower interest rate.

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• The Only Way to Remove Accurate Negative Items on Your Credit Report
• The Difference Between a Home Equity Loan and a Home Equity Line of Credit
• What Employers Look for on Your Credit Report

^†Note that Hanscom FCU's Credit Score and Report Review requires a hard pull on your credit, which will temporarily reduce your credit score.