How are Credit Scores Determined
How are Credit Scores Determined?

It's the time of year when see an increase in consumer lending. Members seek to secure home loans or financing for an automobile. That means two things are necessary. First, you are going to need compliant consumer lending and/or home equity lending forms. Oak Tree has forms to cover all lending and disclosure requirements to fund either loan type. Our home equity and consumer lending packages are customizable and contain all of the disclosure forms necessary to make the process as simple as possible. When your members ask “how are credit scores determined”, you should be prepared for some answers.

Secondly is a discussion about credit scores. They are perhaps the primary determining factor, and a proper understanding now can help your members secure the best financial opportunities later. Credit scores influence interest rates, loan amounts, collateral requirements, and ultimately whether or not to lend money to a borrower. Here is how they are determined:

Types of Credit. This is actually referring to the types of credit already used by a member and generates 10% of a member's overall credit score. It's comprehensive too, including things like a consumer's , retail accounts, credit cards, and installment loans.

Amount Owed. This comprises 30% of an individual's credit score. Things included here are items such as the total number of accounts (and their balances), how much of any credit line is used at any given time, and the ratio of installment amounts owed against the amount already paid.

Credit History Length. 15% of a consumer credit score comes from one simple factor: the amount of time an account has been active. Consumers with new accounts indicate more risk since they are considered new to the world of lending.

New Credit. This makes up 10% of an individual's total score and accounts for how many credit accounts have been recently opened, and the total proportion of those accounts levied against things like recent inquiries, and any positive reestablishment of credit history if payment was a problem in the past.

Of course, anyone's credit score will change over time, accurately reflecting current financial behavior. Negative information falls off after so many years regarding things like bankruptcy, lawsuits, or judgments. With all of these factors in the mix, it's highly possible that an individual's credit score will look different from one month to the next. This is good information to have on hand when it comes time to discuss lending with one of your members. Our packages can help you facilitate the process of underwriting to make it as simple as possible. The credit conversation, however, is up to you. It might be great to discuss the importance of credit scores beforehand with those members who are interested in consumer credit. News flash, Oak Tree can help you market those potential members. Contact us at

This will allow them to make adjustments before they seek funding, and hopefully, improve their credit score. When the time comes for your members to start the process, you will be ready if you are an Oak Tree customer. They will too since you gave them all the information they needed to properly understand their credit score. If you need consumer lending, or home equity lending forms, contact us today. All of our forms are customized to your needs and can integrate with any data processor. We have you covered, so you can work with your members to improve their credit score so they get the best rates and terms available when it is time for them to borrow!

Oak Tree has been helping credit unions with their lending documents for over 37 years now.