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Nothing can be more frustrating to someone who is trying to build or rebuild their credit than to discover that the loan payments they are making don’t help. A reader asks whether there is anything he can do to force lenders to report all of his on-time payments to the major credit reporting agencies.

I have good credit. My score I believe is around 600, mainly because I have NO credit. I’ve recently gotten a bank loan back in May 2011. I made ten payments, then refinanced and got another small loan added to the first. I thought they were reporting this to the credit agencies but after a year I tried to get a credit card and was turned down.

I was surprised and asked for my credit reports. There was no mention of my loan or the on time payments. I’ve been trying to get this straightened out. I’ve written all three agencies, faxed, called and spoken to agents, sent a letter from the bank stating the facts and showing the dates I took out the loan, and history, as well as I had paid ON TIME every payment.  My history of on-time payments and the existence of the loan isn’t on my credit report.

My credit score dropped lower. What can I do? Where can I turn for help? — “Louis”


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A: It sounds like you’re learning from the good old School of Hard Knocks some important lessons on how the credit reporting and scoring systems work. Once you understand the process better, however, you’ll be able to use it to build stronger credit.

First, you don’t have “good” credit if you have a credit score of around 600. You may not have any late payments on your reports, but ask you’ve learned, it’s pretty hard to have strong credit scores without current credit references reports on a regular basis on your credit reports. In fact, consumers with few or no accounts reported may have credit scores similar to people who have bad credit.

But you seem to grasp that, which is why you decided to get a bank loan to build credit. Unfortunately, your mistake was taking out a loan with a lender that sounds like it wasn’t set up to automatically report your payments to the credit reporting agencies each month.

[Related Article: The Impact of Alternative Credit Reporting Agencies]

For a lender or other type of business to be able to report payment information to the CRAs, it must first apply, go through a screening process, and then get approved to do so. It must be set up to handle any disputes customers may have over the information that’s reported. And it will have to comply with credit reporting industry standards for transmitting information to the CRAs.

This is a completely voluntary system: no lender is required to report. In addition, some lenders (or “furnishers” as they are called under federal law) only report negative information. It’s unusual for a bank or credit union of any decent size not to be set up to report, but it doesn’t sound like your bank is. Or at least it’s not set up to report the kind of loan that you have.

For that reason, trying to fight this battle is probably going to be a further exercise in futility. The CRAs aren’t required to add an account provided by the lender in a credit letter. They are only required by law to investigate disputes of information already on your credit reports. If the account isn’t being reported, it technically can’t be disputed.

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In addition, unless the lender is set up to provide account information on a regular basis to the CRAs (usually electronically or in a similar way), it probably won’t help your scores much to have this information added on a one-time basis.

Instead of getting a bank loan from a bank that doesn’t report to the major CRAs, you’re better off getting a secured card that does report to all three. Your payment history will appear on your credit reports and, over time, your scores will begin to reflect this positive information.

I understand this is frustrating to have to essentially start this process all over again, but the sooner you get started, the sooner you’ll be able to build better credit.

Image: Images of Money, via Flickr.com

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