Credit Knowledge & Empowerment > How it Works

Credit scores are a key factor impacting a borrower’s ability to get a mortgage, a reasonable car loan, a good credit card rate and low premiums on car and home insurance. A person’s credit history is compressed into a Credit Score to reflect the future credit behavior of the person from the lender’s point of view. Because Credit Scores are used in so many ways, it is important to understand the credit scoring process, and know what your Credit Score is when you look to obtain financing of any kind. 

At New Beginnings Financial Services we have an extensive record of helping customers understand the importance of their Credit Score – and in assisting them in improving the score. We have gathered together some of the things we have learned over the years to help you get a better grasp of Credit Scoring and how to make it work for you rather than against you.
 

How can this information benefit you as a customer?

1. US PIRG studies show that 79% of all credit reports contains errors and 25% of these are serious enough to impact the loan program customers qualify for and consequently the loan amounts and rates. Reviewing your credit report regularly with knowledgeable support can help you spot potential errors.
2. Reviewing your credit may also help you avoid identity theft. 
3. Learning more about Credit Scoring and can save you money on many items, as you will see.
4. Setting up a plan that gives you support and the most current information to improve your credit score (such as NBFS offers) can help you regain the power over your credit profile.

What Factors Affect My Credit Score?

Payment History 35% impact: 
Paying your debt on time and in full has a positive impact. Late payments, judgments and charge-offs have a negative impact. Missing a high payment has a more severe impact than missing a low payment. Delinquencies that have occurred within the last two years carry more weight than older items.

Amounts Owed 30% impact: 
How much of your available credit limits do you currently use?  Ideally, you should keep your balances below 30% of available credit limits. Balances over 50% can negatively impact your score each month.

Length of Credit History 15% impact: 
The length of time since a particular credit line was established will influence your Credit Score as well as the ability to keep a low balance on it. This is also why it’s not generally a good idea to close out older lines of credit. It shortens your history and may impact your score.

Type of Credit 10% impact: 
A mix of auto loans, credit cards, and mortgages is more positive than a concentration of debt from credit cards only.

Number of Inquiries 10% impact: 
This counts the number of inquiries that have been made on a consumer’s credit history within a six-month period. Soft inquiries do not hurt your Credit Score, but the number of hard inquiries will have an impact. If you apply for a mortgage or auto loan, up to 20 inquiries in a 14-day period will count as one inquiry; the consumer is allowed a comparison period.  Here’s some third-party verification of this. 

Certain situations such as looking for a mortgage or auto loan may cause multiple lenders to request copies of your credit report. To compensate for this, the credit score counts multiple inquiries in any 14-day period as just one inquiry. In addition, many creditors disregard inquiries once they have been on your report six months or more, and all credit inquiries should come off your report after two years.
Lisa Madigan, Illinois Attorney General
www.illinoisattorneygeneral.gov/consumers/credit_inquiries.pdf

If you apply for new credit cards, however, every inquiry will damage your Credit Score, this is viewed as the consumer being anxious to secure finances. 
 

What information is included in my credit report?

• Your name, current and previous addresses, phone number, Social Security number, date of birth and current and previous employers. This information comes in part from your credit applications.
• Your Credit Score. When you apply for a mortgage, most lenders retrieve your Credit Scores from the three major credit bureaus to get your scores as well as an accurate picture of your Credit History. Scores may vary widely from bureau to bureau and are often different on a report which consumers pull vs a mortgage or auto lender’s report.  Checking both annually can help you have a more accurate picture of how the lending industry views your credit profile.
• Specific information about each account, such as the date opened, credit limit or loan amount, balance, monthly payment and payment pattern during the past several years. This information comes from companies that do business with you.
•  Federal district bankruptcy records and state and county court records of tax liens and monetary judgments. This information comes from public records.
• Number of inquiries within the last 90 days and the source of the inquiry.
• Statements of dispute, which allow both consumers and creditors to report the factual history of an account. Both the consumer's and creditor's statements of the account status will appear on the credit report. 

We at NBFS encourage you to use us as a way to maximize all of your credit improvement possibilities.  We want you to have the information to gain control over your credit profile.  Feel free to call on us at any time to put a plan together and take the next steps.