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Your Credit Report

As a consumer, you should be aware of what's in your credit report and how your credit score is used.

Credit unions, banks, insurers and many employers use a model created by Fair, Isaac and Company, a San Rafael, California company that pioneered credit scoring 40 years ago and dominates the field today. This score is most often known as FICO and serves as a snapshot of a member's credit history.

Credit scores, especially FICO Credit Scores from Fair, Isaac & Company, are tools used by lenders to predict the risk of a consumer defaulting on a loan. The FICO scoring system predicts the likelihood that an existing account or potential customer will become a serious credit risk. The FICO score is based on the data available in the borrower's credit report. It is important to note that it is not a measure of a borrower's income, assets, or bank acount- it is based solely on the data within the credit file.

How is a credit score computed?

Financial institutions have increasingly come to rely on what's known as "risk-based credit scoring" to determine a member's credit worthiness. These scores are supposed to measure how likely a member is to repay a debt and are a key factor in determining if the member can get credit, and at what cost.

Most credit bureaus use the FICO "scorecard" to create credit scores for individuals. A score is defined as a number that tells a lender how likely an individual is to repay a loan or make credit payments on time. Fair, Isaac's software calculates the credit score on the basis of data collected in five basic categories: payment history, amount owed, length of credit history, new credit, and types of credit used. Fair, Isaac has revealed how each of these factors is weighted and how a consumer can improve his or her score.

Here are the approximate weighted percentages that determine a FICO score. The score is based on ALL the credit related data in the credit report- not just negative data. The type of information examined when compiling a score includes:

  • Bill Payment History (35% of  Total Score)
This very broad category examines lifestyle history, how long you've lived at your residence, do you own or rent (owning property earns extra credit), how long you've been employed at your current job, education level (college education earns extra credit), how much money you earn, and how credit has been used. This category also includes credit account payment history, public records, law suits and collection items.

The largest influential factor determined on the FICO score is basic payment history. The score also checks the number of unpaid bills, any bills sent to collection, bankruptcies, etc. The more recent the problems may be, the lower the score is likely to be.

  • Number and Make-up of Outstanding Debts (30% of Total Score)
This factor looks at the number of accounts held and the relationship between total balances and total credit limits on revolving trade lines. Are credit cards maxed out? High balances, or more correctly, balances that are close to the credit limit, can have a negative effect on the score. Balances below 30% of maximum credit lines will improve the credit score.

  • Length of Time of Credit History (15% of Total Score)
How long have the accounts been open? The longer period of time, the better the rating will be.

  • Recent Inquiries and Newly Opened Accounts (10% of Total Score)
Every time you apply for credit of any kind, you create an inquiry on your credit report. Frequent inquiries and new account openings within a short period of time have a negative effect on the credit score.

  • Types of Credit in Use (10% of Total Score)
Do you borrow from high-rate lenders, have loans from finance companies, or use travel and entertainment credit cards? Department store cards? The number and amount of these trade lines are considered in this category.
A credit score will range between 300 and 870. The higher the better. As the score increases, credit risk decreases.The average American has a score of 720.

How is the credit score used?

At most credit unions, the credit score is a very important factor for approving loan requests. A very low score can mean denial of a loan completely. The credit score may also be used to set the interest rate the member will pay for the loan. A low score can raise the price of the member's loan.

You should order a copy of your credit report annually from each of the three major credit reporting companies, Experian, Equifax and Transunion. You can do this by visiting www.annualcreditreport.com or
call 1-877-322-8228. This is a free service.

Free Annual Credit Report

Central Maine Federal Credit Union

1000 Lisbon Street
Lewiston, ME 04240
Fax: 1-207-777-1914

836 Center Street
Auburn, ME 04210
Fax: 1-207-440-2100

Mailing Address:
P.O. Box 1746
Lewiston, ME 04241-1746

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