Credit Reporting and Tracking How Quickly Do Things Change

Credit Report Lag Time – What’s lag time? Simply put, lag time is the amount of time between when you make a payment on an account and when that payment is reflected on your credit reports. This lag time can be 60 days in some cases. Why is there a lag time and can this impact your ability to fight potential identity theft, lets take a closer look.

This is a huge problem because essentially every account on your credit report reflects information that’s between 30 and 60 days old. This makes it more difficult for credit scoring models to generate a truly accurate and up to date score. This is because they “score” whatever is currently on your credit reports. But, in our current system all scores are generated based on credit information that’s at least 30 days old. It’s not the end of the world but it would be nice to feed the most up to date information into the scoring models. Us consumers deserve at least that much.

Go get your credit reports. It doesn’t matter from where. Look at the date called “Date Reported” or “Reported Date.” This date will almost always be last month or older. Your balance will correspond to the statement that you got that month.

What this means is that if your balances on credit cards, auto loans, mortgage loans or any other loans has decreased significantly (or been paid in full) within the past month then your credit reports and your credit scores won’t reflect it. This is especially problematic for consumers who are close to making a major purchase or are working to pay down debt in an effort to improve their credit scores. Just because you pay off your credit cards today doesn’t mean that it will show paid in full on your credit reports…ever.

That’s right. This lag time has an unintended consequence to people who pay off their credit cards in full each month. By the time your account payment is received, processed and updated at the credit bureaus it’s almost certain that you’ve used the card again for something else. So, even though you pay the card in full each month your credit reports will never show a $0 balance unless you don’t use the card for 60 days after you paid it off. Seriously.

I was having a heated debate with a friend of mine who works at one of the credit reporting agencies recently about this lag time and the effects on consumers. His argument was that this is the way it’s been for decades and that it would cost the credit bureaus billions of dollars to revamp their systems to dynamically update (update in real time). And, since this is the way it’s been for decades that lenders, consumers and credit score developers are use to seeing data that’s based on the previous update.

Ok, fair enough. I’m all about saving money but I think there’s so much room for improvement here
My argument is that when I go to the mall and buy a pair of $40 jeans everyone BUT the credit bureaus knows about it. My credit card company certainly knows about it because they had to approve and process the transaction and then subtract $40 from my credit limit. This all happens in real time. But, it’s going to take almost 2 months for that purchase to be reflected in the balance on my credit reports. I’ll have already outgrown the jeans by then.
My Conclusion – Until the credit bureaus update their databases in real time just like the rest of the world then this lag time results in outdated information on credit reports. As such, they are inaccurate. And, the credit scores that are generated on this outdated credit information are not a true and accurate representation of my credit risk. They are a true and accurate representation of my credit risk from 60 days ago.

I’d love to hear your two cents on the matter. Do your reports have account information from 30-60 days ago? Even older? Do they show that your credit cards are paid in full each month? Share your two cents in the comments section below!