MSU Extension

We’ve all seen the commercials about credit score companies telling consumers that simply knowing your credit score will enable more buying power. But what goes into the score and is the credit score the only important part of the credit report? Which company has the true and correct information? Most importantly, why does a credit report or score matter?

Credit reports and credit reporting companies have been around for almost 200 years, starting with general stores keeping track of who owed them, who paid them and who was on time. This practice has evolved from handwritten scraps of paper to the online reporting by agencies that many of us are familiar with today. While there are still hundreds of local and regional reporting agencies, three national agencies report the majority of consumer credit. They are: Trans Union, Equifax and Experian. These are the agencies that lenders use when deciding whether to grant to consumers or not. So, what do they see when they look at a credit report?

Credit reports show:

• Who you are – name, address, social security number, date of birth and employer.
• How much debt you have – who you owe and how much is owed.
• Whether you have made payments on time – and whether payments have been late.
• Whether there is negative information about you in public records – this includes judgements, liens and bankruptcy.
• Who has requested your credit report in the past two years?

Credit Reports do not show:

• Marital status                                   
• Income                                  
• Gender                                  
• Political affiliation
• Religion
• Race
• Ethnicity

There are five primary categories that make up and contribute to the credit score:

            Category                                                        Weight of Importance (percentage)

1. Payment History                                                       35
2. Amounts Owed                                                         30
3. Length of Credit History                                           15
4. Types of Credit                                                         10
5. Credit Inquiries                                                         10

It’s important to understand that your credit report and your credit score are different. The credit report is an organized list of what has been reported by lenders. The credit score takes all of the factors reported and calculates a numerical score based on a mathematical formula. The number will be between 300 – 850 and the higher, the better. By checking your credit report at least once a year, consumers ensure that what is being reported is accurate. This is especially important when planning a new purchase such as a car or home. Knowing what is on the credit report before applying for any new credit allows consumers to correct any errors. It is also important to ensure that your identity isn’t being used without your permission.

The credit report and the credit score are used to determine whether a lender will grant new or additional credit to consumers. It can also be used in determining interest rates, whether insurance companies will offer insurance, the ability to rent an apartment, and, in some situations, may be part of a hiring decision. The credit score does not define a person, but it does tell businesses how credit has been handled. Good credit indicates a lower risk while poor credit indicates a higher risk. Consumers with good credit benefit from lower interest rates and more favorable loan terms. Consumers with poor credit pay more for loans and insurance premiums. Why does your credit matter? It’s a tool to use in building or rebuilding a strong financial future.

Michigan State University Extension offers financial literacy and homeownership workshops throughout the year to help you become financially healthy. For more information of classes in your area, please visit either the MSU Extension events page or MI Money Health website. Additionally, you can take the Financial Health Survey at MI Money Health to access if you’re financially healthy and discover more ways you can improve your financial health. 

Michigan State University Extension has released a new toolkit for homeowners who are experiencing or have previously experienced foreclosure. This toolkit will equip these individuals and families with tools to help them recover their financial stability, in the case that a recovery of their home is not possible. The toolkit is available to download free at the MI Money Health website.

To contact an expert in your area, visit the expert page, or call 888-MSUE4MI (888-678-3464).