Understanding Your Credit & Your Credit Score

What’s on Your Credit Report?

 

Your credit report is a reflection of your financial reliability. Therefore, it is incredibly important that you understand what information is contained in your credit file.

Your credit report contains the following:

  • Personal data, such as name and any names that you have applied for credit with (AKA’s, Maiden Name), social security number, date of birth, and current address, as well as previous addresses and employer information
  • Credit accounts, such as credit cards and loans. This information includes credit limits, balances, payment history, and account status (i.e. current, past due, etc.)
  • Public record information, such as bankruptcies, collections, liens, and judgments. Bankruptcies will remain on your credit file for up to 10 years; collections, liens and any judgments will report for up to 7 years.
  • Inquiries, a listing of companies who have accessed your credit file in the past two years.

 

What is a Credit Score?

 

A credit score represents how well you have managed your credit accounts, with most scores providing a range from 350 (highest risk) to 850 (lowest risk). Most lenders use your credit score to determine whether or not they will grant you a loan and also to calculate how much you will pay in the form of interest. The average credit score in our area is about 690. However, to get the lowest interest rates, your score typically needs to be above 740.

VantageScore® Model vs. FICO® Model

Just like every other industry, the financial services sector continually evolves. Whether it be automated teller machines (ATMs) in 1969, internet banking in 1983, or contactless Unitus debit and credit cards in 2021, banking technology and services constantly seek better ways to serve members. Personal credit scoring is no exception.

Seeking Consistency | Developing the VantageScore model

The three major credit bureaus — Equifax, Experian and TransUnion — determined that creating a single credit scoring model that would be consistent among all three credit bureaus would not only make it easier for financial institutions to make intelligent lending decisions, but would also generate credit scores for millions of consumers who were previously unscoreable. Prior to the development of VantageScore in 2006, each of the three bureaus used their own credit scoring model, leading to differences in credit scores even for the same credit report. VantageScore 3.0, the current model, was created in 2016.

Similar, but Different | How VantageScore 3.0 differs from FICO® 8

While VantageScore 3.0 and FICO® 8 share a fair amount of similarity, four slight differences exist between the two models.

  • Length of required credit history. In order to generate a FICO® Score, a consumer must have one or more credit accounts open for a minimum of six months and at least one account that has reported to the credit bureaus within the past six months. Conversely, VantageScore can utilize credit data from just a single month’s history and with one account having reported within the prior 24 months. This means the VantageScore model is more likely to be able to score individuals who are new to credit and/or use it less frequently.
  • Number of credit inquiries. Applications for credit cards, mortgages, auto loans or other financing can negatively impact your credit score. It makes good sense to apply for multiple credit lines to ensure you receive the best deal you can, but this can also negatively impact your score if multiple inquiries are too far apart. The FICO® Score model considers multiple inquiries for the same type of credit within a 45-day period as single inquiries. The VantageScore model allows for multiple inquiries to be considered a single inquiry within a reduced 14-day period, but also allows for different inquiry types (i.e.. auto and mortgage) within that 14-day stretch to be considered a single inquiry.
  • Consideration of trends. The FICO® model generates your credit score based upon borrowing and credit utilization reported to the credit bureaus at the time the score is generated. Conversely, the VantageScore model considers data that shows patterns of behavior over time. To use a travel analogy, your FICO® score typically shows that you’ve arrived at a particular location, it doesn’t really care how you got there. Your VantageScore score, on the other hand, may award additional consideration for responsible “routes” you took along the way.
  • Scoring criteria weighting. Both FICO® 8 and VantageScore 3.0 use similar scoring criteria, but the criteria are weighted a bit differently. Below is a comparison of the criteria and associated weighting that comprises the two models.

Truly, the FICO® and VantageScore models share far more similarities than differences. Both models seek to offer a fair estimation of creditworthiness to the borrower and lender, alike. It’s important to be mindful that “credit-positive” behaviors like responsible use of credit, practicing good budgeting habits and paying bills on time, will generally reward you with a higher score for both models.

Transparency & Inclusiveness | VantageScore 3.0 offers benefits to consumers

In mid-2021, Unitus began utilizing VantageScore 3.0 in its rating of loan products. We’ve made this change for a several reasons. First, we’re committed to transparency. It’s important to us that our members have ready access to the same credit scoring model we use to determine creditworthiness. The updated score and credit considerations members can access with VantageScore 3.0 is the very same information Unitus will utilize when reviewing loan applications. Our members should possess peace of mind, knowing their current credit score and enjoying more control as they work to protect or improve their score.

VantageScore 3.0 offers additional advantages to consumers. VantageScore 3.0 allows those new to credit to be scored sooner due to its expanded 300 – 850 scoring range. While an individual scoring closer to 300 isn’t as likely to qualify for many credit offerings, the perspective gained from being scored can assist them as they build credit. Additionally, individuals who have experienced minor setbacks, including delinquencies incurred during natural disasters and paid collections, will find VantageScore 3.0 significantly more forgiving for these bumps in the road.

Sources: 4Front Credit Union and TransUnion

 

How to Improve Your Score

Whether your goal is to buy a new house, a car, or a new computer for college, your credit score can be a deciding factor in achieving your goals. If you need to improve your credit score, here are some tips:

  • Always pay your bills on time
  • Reduce balances on your credit cards and lines of credit, but do not close your accounts
  • Carry the majority of your debt in installment loans, such as cars loans, equity loans, and personal loans
  • Open and apply for new loans only when absolutely necessary, reducing the number of inquiries and new accounts on your credit file
  • Review your credit report regularly and correct any errors that you find.” For more advice, visit our Understanding Your Credit Q&A.

 

Get a Free Copy of Your Credit Report

By law, you are entitled to a free copy of your credit report once a year. To obtain your free credit report, visit AnnualCreditReport.com, call 1-877-322-8228 or mail a request to Annual Credit Report Request Service, PO Box 105283, Atlanta, GA 30348-5283. You will be given access to a free credit file from the following three credit bureaus: Experian, Equifax, and TransUnion.

 

Opt Out!

Tired of receiving credit card offers in the mail? Did you know that you can opt out of receiving those pre-screened offers of credit? It’s fast and simple. Not only will you reduce your junk mail, but you might also prevent identify theft by reducing the likelihood of someone stealing a credit card offer from your mailbox. Simply call 1-888-567-8688 or visit www.optoutprescreen.com.

An additional tip… If your credit card company routinely sends you blank checks, call them and ask them to stop (they will).

 

Need More Help?

Come to one of our free Understanding Your Credit seminars. Check the seminars page to see when our next class is scheduled, or call our Member Loan Center. You can speak with any of our trained Member Service Representatives by calling 503-227-5571, option 2.

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