Education Center

All 3 major credit reporting agencies maintain files on millions of borrowers. Lenders use these agencies to access information on individuals who are trying to get additional credit. Your personal credit file details your payment history, debt limits, length of time using credit, and how much new credit you're seeking.

What's in your Credit Report:

Although all 3 major bureaus have similar formats that compile this information, it basically consists of your name, your social security number, date of birth to identify you.

Identifying information:

Your name, address, Social security number, date of birth, and employment information about you. These factors are not used in scoring. Updates to this information come from lenders.

Trade Lines:

These are all of your credit accounts. Lenders report each account you have and the type of account (bank cards, auto loans, mortgage, etc) the date you opened it, the balance and your payment history.

Inquiries:

When you apply for credit, you authorize your bank/lender to ask one of the 3 credit agencies for a copy of your credit report. They will remain on your file for 2 years, there are voluntary and involuntary types of inquiries.

Public Records and Collection Items:

Credit reporting agencies also collect public record information from state and local officials on overdue from collection agencies. Public record information includes bankruptcy, tax liens, judgments, and wage garnishments.

CREDIT Scores are calculated from a lot of different credit data in your credit report. This data can be grouped into five categories as outlined below. The percentages in the chart reflect how important each of the categories is in determining your score.

These percentages are based on the importance of the five categories for the general population. For particular groups — for example, people who have not been using credit long — the importance of these categories may be somewhat different.

• Payment History
  • Account payment information on specific types of accounts (credit cards, retail accounts, installment loans, finance company accounts, mortgage, etc.)
  • Presence of adverse public records (bankruptcy, judgments, suits, liens, wage attachments, etc.), collection items, and/or delinquency (past due items)
  • Severity of delinquency (how long past due)
  • Amount past due on delinquent accounts or collection items
  • Time since past due items (delinquency), adverse public records (if any), or collection items (if any)
  • Number of past due items on file
  • Number of accounts paid as agreed
• Amounts Owed
  • Amount owing on accounts
  • Amount owing on specific types of accounts
  • Number of accounts with balances
  • Proportion of credit lines used (proportion of balances to total credit limits on certain types of revolving accounts)
  • Proportion of installment loan amounts still owing (proportion of balance to original loan amount on certain types of installment loans)
• New Credit
  • Number of recently opened accounts, and proportion of accounts that are recently opened, by type of account
  • Number of recent credit inquiries
  • Time since recent account opening(s), by type of account
  • Time since credit inquiry(s)
  • Re-establishment of positive credit history following past payment problems
• Types of Credit Used
  • Number of (presence, prevalence, and recent information on) various types of accounts (credit cards, retail accounts, installment loans, mortgage, consumer finance accounts, etc.)

Credit scores use a wide range of information on your credit report. These items however, have no bearing on your score.

Your marital status, race, color, creed, or national origin. The law prohibits credit scoring agencies from considering these facts under the Consumer Credit Protection Act.

• Your Age: Several other types of scores may consider your age, but the credit bureau system doesn't.
• Your salary, occupation, job title, date employed, or employment history: Lenders may consider this information, however, credit bureau system doesn't.
• Where you live

It's important that you understand that raising your credit score takes time. Your situation didn't happen overnight, the solution doesn't happen overnight either. You must realize that time is going to pass whether or not you're taking proactive steps to protect your credit rating.

Payment history tips:

• Pay all of your bills on time. It won't help your score immediately, but it will help you begin to get a foothold on managing your monthly budget.
• All late payments and collections can have a huge negative impact on your credit file.
• If you're late on payments, contact your creditors.
• Be aware that paying off a collection item will not be removed from your account. It will stay on your account for a period of up to seven years, but it will also be updated from the date you paid it on your credit file. Please contact a MCS adviser before you pay off a collection item.

Amounts owed Tips:

• Keep your balances low on credit cards and other “revolving credit.”
• Carrying balances above 30% of your credit limit lowers your overall credit score.
• Don't close unused credit cards.
• Don't open a number of new credit cards you don't need.
• Pay off debt rather than moving it around: The most effective way of raising your credit score is to pay down your current debt. It doesn't help your score to have the same balances spread out over several cards or accounts.

Length of Credit History tips:

• If you have just started your credit file, don't open a lot of new accounts. Rapid buildups of accounts looks risky to some lenders.
• Re-establish your credit history if you've had problems: Opening new accounts responsibly and paying them on time will raise your credit score. If you need assistance opening new accounts please contact a MCS adviser to assist you.

Myth: A poor credit score will be with me forever.

Fact: This couldn't be further from the truth, your credit is a “snapshot” in time. It is a risk model for that particular point in time. Scores change as new information is added and old information is removed. Lenders can also take other factors into account when making a underwriting decision.

Myth: Does my credit history affect my privacy?

Fact: Lenders look at the same information already in your bank/application file, it just gives a numeric summary of your file.

Myth: Credit Scoring is unfair to minorities.

Fact: Scoring considers only those items that are credit-related. Factors such as race, gender, are not included. It is currently against the Equal Credit Opportunity Act (ECOA) for lenders to use that in lending criteria. Scoring has prove that minorities or people with little credit are just as likely to repay their credit obligations as the rest of the country.

Myth: Will my credit score drop if I apply for new credit?

Fact: If it does, it won't drop much. If you apply for several credit cards within a short period of time, these are called “inquiries” that will appear on your credit file. It could be viewed as a credit risk, but most scores are rarely affected by group inquiries for a mortgage or an automobile loan. One should use caution in applying for credit, if you don't need it, DON'T APPLY!