Credit 101 - How Does Credit Work?

Confused by your credit report? Review the five areas below that affect your credit report/score and the tips to bring your score up.

Graph showing components that affect your credit score.

Component that Affects Your Credit Score	Percentage of Your Score	How to Improve It
Payment history	35%	This includes payment information, adverse public records, the severity of your delinquency, the number of past due items and the payment amount agreed upon. Bottom line? Pay your bills on time.
Credit available on revolving debt	30%	Check your credit balances and the percentage of credit used on each type. Keep the ratio low.
Length of credit history	15%	The longer you have been building credit and the less you use your credit, the better. Start now if you haven’t already.
New credit	10%	Monitor your credit report for recent account opening and credit inquiries. The longer time period since your last new account or inquiry, the better.
Types of credit used	10%	Watch out for how many credit accounts you have open.

What actions will hurt the score?

• Missing payments (regardless of $ amounts … It takes about 24 months to restore credit of one late pay)
• Credit cards at capacity (i.e. maxing out credit cards)
• Closing credit cards out ( this lowers available capacity and the eliminates the history)
• Shopping for credit excessively
• Opening up numerous trades in a short time period
• Having more revolving loans in relation to installment loans
• Borrowing from finance companies
• Transferring Balances

What doesn’t affect the score?

• Debt ratio
• Income
• Length of residence
• Length of employment
• Criminal Record or Personal Information

How to improve the score?

• Pay down on credit cards
• Do not close credit cards because capacity will decrease
• Continue to make payments on time (older late pays will become less significant with time)
• Slow down on opening new accounts
• Acquire a solid credit history with years of experience

Why credit scores are important?

• Obtaining additional credit at preferred rates
• Better insurance rates
• Employment opportunities

Approximate credit weight for each year.

• 40% = current to 12 months
• 30% = 13-24 months
• 20% = 25 – 36 months
• 10% = 37+ months

Marine Cred Union offers several opportunities to help increase your credit score:

Get Credit – a 12 month program that allows you to build your credit score and your savings all at once. You pick the amount to save, and we’ll get you set up for success.
Credit Builder Checking – members can enjoy the perks of a checking account and strengthen their credit at the same time, all for just $5 per month.

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Credit 101 – How Does Credit Work?

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