What Are 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:
- Equifax,
- Experian, and
- TransUnion.
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.
