If you have been trying to get approved for a credit card but your application has been denied by more than one credit card issuer, then you are probably familiar with the term credit card reporting credit. Here’s what it implies and how it differs from traditional credit cards.
What Are Credit Cards Reporting Credit?
By definition, a credit card reporting to credit bureaus is an electronic payment method that allows you to pay for goods and services with funds you don’t personally own for as long as you keep returning the money you’ve borrowed from the card issuer at the end of each billing period and reports this activity to 3 main credit bureaus.
However, credit reporting cards differ from many similar payment options in that they report your cardholder behavior to the three main credit bureaus, thus giving you an opportunity to build or improve your creditworthiness through the responsible use of a credit reporting credit card.
However, many credit report cards come with one additional clause:
In order to get approved as a cardholder, you need to secure the card with your personal funds for a certain period of time. This should serve as a deposit or collateral to the card issuer, which for some reason needs a guarantee of your ability to return the funds you borrow.
What Credit Cards Report to Credit Bureaus
Are Credit Reporting Cards the Same as Credit Cards?
The easiest way to explain what credit cards reporting credit are is by specifying what they are not. But in order to understand any of these explanations, you first need to adopt the basic terminology used by credit card issuers to describe and categorize various types of payment options.
The umbrella term “credit card” stands for any payment method that involves an electronic payment card and an option to borrow funds from a card issuer – a bank or some other financial institution that issues credit cards. This is the difference between credit and debit cards.
Credit Report Cards Are Credit Cards
Credit reporting cards fall under the category of credit cards.
This means that they allow you, the cardholder, to pay for goods and services with the money you’ve borrowed from the card issuer. Essentially, all credit card funds function as short-term loans – at the end of each month, you are obligated to pay the loan back to your card issuer.
More often than not, this short-term loan comes with additional agreed-upon expenses that range from general, such as interest and annual fees, to very specific. At the end of each billing period – which is usually a month – a cardholder pays fees together with what they owe.
Variety of Credit Cards’ Types
There are many different types of credit cards and just as many classifications.
Furthermore, not every individual can get approved for every type of credit card. This is because credit card issuers take into account an individual’s credit score – an individual’s creditworthiness that speaks of their ability to pay back the money they borrow from the bank.
There are credit cards for excellent, good, fair, bad and no credit score.
Credit cards reporting credit belong to this last bracket – credit cards for bad or no credit score.
Are Credit Reporting Cards the Same as Secured Credit Cards?
A different classification separates secured from unsecured credit cards.
Similarly to prepaid debit cards, secured cards require an advance from a cardholder. In order to obtain and start using a secured credit card, you need to submit a refundable security deposit that serves as collateral in the event that you can’t pay back the funds you’ve spent.
The refundable security deposit is held by the card issuer to be used only after you, the cardholder, fail to make payments for several months in a row – which is also known as “defaulting“. This is only a last resort for the issuer, rendered needless by the responsible card behavior.
Most secured credit cards have a grace period that allows you to avoid interest charges by paying the bill in full amount in due time. The security deposit will not be used to cover monthly payments unless you stop paying your credit card statements for a longer period of time.
Depending on the specific card issuer, more or less the same principle applies to credit cards reporting credit. Nevertheless, credit reporting cards are not secured cards any more than they are prepaid debit cards. But secured credit cards are, by definition, credit reporting cards.
Who Are Credit Reporting Cards Intended For?
All types of payment options that require a safety deposit are designed for individuals who can’t get approved for more traditional credit card types. The main reason their applications get denied is that card issuers don’t have any guarantee of them being able to make their payments.
By rule, these individuals have a poor credit score or don’t have any credit history.
In general, credit cards reporting credit are intended for:
- People with bad credit score, no credit history, or low to nonexistent income.
- For Those who don’t want their credit score checked upon card application.
- And, people who want to boost their business’ credit score without affecting their personal credit score.
Credit reporting cards are less suitable for other individuals.
Payment options for higher credit scores usually boast more favorable terms than payment options intended for individuals with poor credit score and no credit history. Although this doesn’t have to necessarily apply to expenses and fees, it usually does to perks and rewards.
A person with a higher credit score would simply benefit from other cards more.
What Are Credit Cards Reporting Credit Aimed Towards?
Because credit reporting cards are intended for individuals with poor credit score and no credit history, it’s only natural that they give cardholders a fair chance for building and improving their overall creditworthiness and thus help move forward their loan applications.
Of course, this always depends on the specific card and the card issuer.
In theory, it’s possible for an individual with a poor credit score and no credit history to build and improve their creditworthiness through the responsible use of a credit card reporting credit.
This primarily implies 2 things:
- not missing monthly payments, and
- not carrying a balance.
What Is a Credit Score?
Credit Cards reporting credit are defined by a credit score twice – they are the only viable and convenient payment method for people with a poor credit score or no credit history, designed to help them build or improve their credit score and credit history. But what is a credit score, exactly?
In short, your credit score represents your creditworthiness.
To financial and other institutions, this number signals whether or not you can pay your bills and how likely it is that you will pay them on time. Without this signifier, most institutions would label you as financially incompetent and unreliable, denying you of loans and benefits.
How Is My Credit Score Calculated?
There are several credit score scales, the most popular of which are FICO and VantageScore.
The way your credit score is calculated depends on which credit score scale a certain institution uses. However, you should understand that the difference between FICO and VantageScore is practically negligible – unless you have a very specific reason for tracking and boosting your score.
Both scales use the same basic criteria:
- 1. Payment history
- 2. Length of credit
- 3. Types of credit
- 4. Credit usage
- 5. Recent inquiries
Differences Between FICO and VantageScore
The main difference between FICO and VantageScore is in how they collect data and use it to come up with a single formula. For example, FICO requires at least six months of credit history to establish your credit score, whereas VantageScore needs only one month of credit history.
Late payments are one of the key factors for determining a person’s credit score.
Unfortunately, this doesn’t include only your credit card bills, but also your rent, mortgage, and insurance payments, just to name a few. While FICO treats all late payments the same, VantageScore penalizes late mortgage payments more harshly than other types of late payments.
Both FICO and VantageScore take the following into account:
- 1. How recently the last late payment occurred
- 2. How many of your accounts have had late payments
- 3. How many payments you’ve missed on an account
This is especially important in the context of credit cards, as most cardholders tend to hurt their credit score unknowingly by missing or delaying their monthly payments. The same applies to every type of credit card, including our current topic – credit cards reporting credit.
Who Calculates My Credit Score?
Both FICO and VantageScore, as well as any other credit score scale in the world, provide the formula for calculating an individual’s creditworthiness. With that, their job is done. The calculation itself takes place somewhere else after all the data is gathered and analyzed.
In the US, this is done by the three main credit bureaus:
- Experian, and
The same of similar principle is applied in all other economically developed countries.
Credit bureaus collect information on your creditworthiness and then resell it to other financial institutions – one of them being your credit card issuer – in the form of a credit report. In return, your credit card issuer reports back to credit bureaus with your current data.
Getting Your Credit Score
There are several ways you can obtain your credit score, depending on how detailed you want this report to be. Some online platforms such as Lending Tree, Wallet Hub, Quizzle, Credit Sesame, and Credit Karma offer this service for free.
If you already own a credit card or a banking account, you may be able to see your credit score somewhere on your credit card bill or showcased on your online account. Most card issuers, credit unions, and banks will be able to provide this information to you.
But if you want a full credit report, you won’t be able to get it for free.
If you’re looking to track and improve your credit score, the best course of action is to purchase your full report from any of the major credit bureaus – TransUnion, Experian, or Equifax. You’ll receive an in-detail report of your entire payment history and credit usage.
As for your credit score, this credit report will include a number that puts you in one of 4 credit score brackets – excellent, good, fair, or poor. Depending on the source, you may or may not be able to see a more detailed explanation of what damages your credit score.
10 Reliable Signs That My Credit Score Is Bad
Sometimes, you don’t even have to obtain a credit report in order to find out how bad your credit score is – the only thing it takes is to get denied for a credit card or a mortgage. The following signs are reliable indicators that something’s not right with your credit score:
1. You’ve Missed More than a Few Payments
Most credit card issuers won’t report your activity to the credit bureaus until you’ve made several late payments in a row. Missing more than a few payments is one of the top reasons why people get bad credit even when they pay their billing statements in full amount.
2. You’ve Been Making Minimum Payments Only
Other people have a below-average credit score for the opposite reason. Even though they are never late with their monthly payments, they never pay more than the minimum amount. If you’ve started to accrue balance on your credit card, your credit score has plummeted.
3. You Had to Close an Old Credit Card Account
Just having or not having a credit card matters for your overall credit score, but so does your credit length. In the majority of situations, closing an old credit card account doesn’t bode well for your creditworthiness. On the contrary – it can actually lower your credit.
4. You’ve Recently Had One Too Many Credit Checks
When card issuers or lenders check your credit score, this is called “hard inquiry” (as opposed to you checking your own score online, which is labeled as “soft inquiry“). Having too many hard inquiries in a short period of time drags down your score, so be very careful.
5. Debt Collectors Have Started to Harass You
This is usually a very reliable sign that your credit score is no longer as satisfying as it used to be. When you get phone calls, emails, and letters from debt collectors, it usually means only one thing – you’re dealing with multiple debts on more than just one loan.
6. You’ve Been Denied a Job Application
Did you know that one in every ten jobseekers gets turned away by an employer because of a less than acceptable credit score? This is happening more often than you’d think, especially when the position in question is a high-earning job in a respectable company.
7. You’ve Been Denied a Loan Application
In case you’re not experiencing any problems at your current job and have a good income, but you get rejected for a loan nevertheless, this is another telltale sign that something’s not right with your credit score. You should make a soft inquiry as soon as possible.
8. Your Insurance Premium Is Suddenly Higher
No insurance company will cover you without an official guarantee that you’ll be able to pay your premiums for years to come. If your credit score is bad, they will simply add a safety deposit to your premium, which may be why you’re suddenly required to pay more.
9. Your Credit Card Interest Rate Has Increased
The same goes for your credit card rate – among the many perks and benefits of credit cards for excellent and good credit is a lower interest rate. The lower the credit score, the higher the interest. If your rate is up, it’s time to get suspicious about your credit score.
10. Your Landlord Is Demanding an Early Rent
A tenant’s credit score is a reliable indicator of whether or not they will be able to cover their rent for an agreed-upon period of time. If you were a landlord, you’d be checking it too. Check your credit score if your landlord has started to act nervous around you.
4 Credit Cards designed for Bad Credit Holders
Credit Score Ranges, from Bad to Excellent
Depending on why you need it for, a problematic credit score may cause you more or less trouble. Some lenders may estimate that your credit score is not in such a bad shape, while others may reject your application without even taking it into due consideration.
But generally speaking, a credit score is not a subjective measure.
On both FICO and VantageScore’s scale, credit scores range from poor to excellent:
- Poor credit: below 600
- Fair credit: 650-700
- Good credit: 700-750
- Excellent: 750 and up
Poor and fair credit scores leave you with very limited options for borrowing money and applying for credit cards, while good and excellent credit scores provide you with lower interest rates and great perks and benefits. The higher your credit score is, the better.
Why Would I Need to Improve My Credit Score?
The lower your credit score is, the more expensive life gets.
As more and more consumer-facing businesses are basing their financial decisions on credit scores, it is becoming exponentially more difficult to live a fulfilling life without any credit history or with a poor credit score. And this goes beyond getting a credit card or loan.
These days, you need a good credit score for everything from having a decent job to accommodation in a decent neighborhood. Your job, home, and car, as well as your children’s education most probably depend on your overall creditworthiness and your ability to pay your debts.
According to data gathered by Informa Research Services, an individual with a credit score in the 600 range – which doesn’t even classify as poor, but as fair – would need to pay $65,000 more on a $200,000, 30-year mortgage than an individual with a score over 750.
7 Good Reasons to Improve Your Score
Here are seven more good reasons why you need to improve your credit score:
1. Start Saving Money on Lower Interest Rates
Most credit card options for people with poor credit scores (including credit cards reporting credit) come with higher interest rates. Higher interest rates mean higher credit card expenses. The faster you improve your credit score, the faster your interest rate will drop.
2. Stop Paying Expensive Security Deposits
Moneylenders, landlords, and car salesmen are not the only ones who calculate your expenses using your credit score. Other service providers, like phone companies, for example, do it too. As long as your credit score is poor, you’ll be paying expensive security deposits.
3. Unlock Significantly Lower Insurance Rates
The same goes for your insurance, presuming you can get one in the first place. Whether it comes to home, life, or auto insurance, your overall creditworthiness matters. Improve it in time so that you don’t spend your entire savings for getting some peace of mind.
4. Access a Higher Credit Limit on Your Card
When it comes to credit card usage, the rule of thumb is never to carry a balance surpassing 30% of the total amount of your available credit. With a better credit score, you’ll have more available credit and therefore more leeway for carrying a credit card balance.
5. Wave Goodbye to Pushy Debt Collectors
Debt collector letters, emails, and phone calls range from pushy to straightforward harassing. The only way to stop them is by improving your credit score. By doing so, you’ll be able to unlock new financial benefits that can help you pay off debt collection accounts.
6. Call It Quits and Start Your Own Business
Having an above-average credit score allows you to get approved for a small business loan and start your own company. Similarly to buying a house, this is a huge investment in your family’s future. However, starting a business is not possible with a poor credit score.
7. Start Building Your Children’s Credit Score
The sooner you start acting responsibly with your credit, the sooner you’ll be able to start building a future for your children – get them to better schools, support them financially, and help them get on their feet once they are adults. Any other alternative is unacceptable.
How Credit Cards Reporting Credit Affect Your Credit Score
Just having or not having a credit card affects your credit score.
Roughly one-third of your credit score, as calculated by either scale, is based on your credit usage – a gauge of how much available credit you have in comparison to how much you actually use. Credit usage essentially boils down to the responsible use of credit cards.
Here’s an example:
If you own 2 credit cards, each being limited to $2,000, the total amount of your available credit is $4,000. If the total of the balance you are carrying on your credit cards amounts to $1,200 or less, your credit score, along with your credit usage, should be satisfactory.
Whether you carry any balance on your credit cards is a key determining factor. According to math, the total amount of the balances you accrue should never go beyond 30% of the total amount of your available credit. Owing nothing or less than 30% would be ideal.
How Credit Card Balance Is Accrued
Credit card balance is the total amount of money you owe to your credit card issuer – the money you borrowed and spent plus additional expenses and fees. Balance is accrued every time you pay only the minimum amount of debt as shown on your billing statement.
That is what carrying a balance means – moving debt to the next billing cycle.
The only certain way to avoid carrying a balance is to pay it off in total every month. Although this means that you can only spend as much as you can afford to pay off in a single month, that’s the reason credit cards exist in the first place – to lend you a short-term loan.
What Else Counts as “Responsible Credit Card Behavior”?
For any type of credit card, credit reporting cards included, “responsible behavior” boils down to one simple rule – paying your credit card billing statement in full and on time. Everything else is supposed to help you reach that monthly goal through responsible everyday use:
- Understand your credit card terms – especially your interest rate and additional fees.
- Limit how many cards you own – the more billing statements, the bigger the confusion.
- Never lend your credit card to someone else – you’ll risk losing control of their spending.
- Avoid getting cash advances – cash advance fees come with ATM fees and high interest.
- Avoid unnecessary balance transfers – unless you have favorable balance transfer terms.
- Finally, charge only what you can afford – never borrow more than you can payback.
How Having a Credit Reporting Card Impacts Your Credit Score?
Your credit score gets calculated with a slight delay. Because it generally takes time for credit bureaus to obtain consumer and cardholder data, you can hardly expect your credit score to be calculated in real-time. This becomes a problem if you need to boost your score fast.
Credit reporting cards differ from other similar payment methods in that they report your credit card behavior directly to the credit bureaus. This is why they are so convenient for people with poor credit score and no credit history in the first place – they help push things forward, faster.
Are There Any Alternatives to Credit Cards Reporting Credit?
Yes and no.
While there are several other ways for you to build and improve your credit score, only this one includes having your own credit card that won’t burn your pocket or put an additional strain on your credit score. Also, only credit reporting cards report to bureaus regularly.
If you want to boost your credit by using a credit card, this feature is crucial.
Other alternatives to credit reporting cards include:
- Paying down high credit card balances within 30 days.
- Establishing the practice of tracking your credit score.
- Start paying your bills in full and on time for at least one year.
- Having rent and utilities report your payment history.
- Getting a student credit card, if applicable to your situation.
- Becoming an authorized user of someone else’s credit card.
- Taking a “credit builder loan”, presuming you can pay it back.
- Getting a loan with a cosigner, presuming you can pay it off.