In the 1970s, the Fair Isaacs Company created the first credit scoring system, dubbed the FICO score, which has since been standardized as the industry’s leading credit score model to assess potential borrowers. More recently, the VantageScore was created in collaboration with the three big credit bureaus – TransUnion, Equifax, and Experian – as a new generic proprietary credit score model marketed as a more “consistent interpretation” and “accurate score” than FICO. What exactly can you expect from the VantageScore that differs from the classic FICO, and what does it mean for your credit score?

The Basics

Consumer-friendly, free TransRisk score, the lender standard FICO, to the new-kid-on-the-block VantageScore, the plethora of credit score models can be mind-boggling. Every model uses a different algorithm that weighs each part of your credit report differently, which explains why you may have a 750 from Transunion and a 762 from FICO. We’ve previously addressed how to understand the credit score differences; there are indeed many different credit score models, but they are all highly correlated. They use different ranges, different formulas, and the information found on your credit report can differ from bureau to bureau, but all the models aim to assess your credit history and translate it into your 3-digit credit score number.

The VantageScore

The big three credit bureaus, TransUnion, Equifax, and Experian, offer their own proprietary models but usually provide the FICO score to lenders. So they created the VantageScore model to create a consistent credit score model across the three bureaus to compete with the FICO score. Thus, they can offer lenders a more “standardized” score from the bureaus and cut out the Fair Isaacs Company.

VantageScore is being touted as “The New Standard in Credit Scoring”, and it can potentially be big business if the bureaus can compete successfully with the stranglehold FICO has on lenders. It just depends on whether lenders will be willing to change to a different model.

The VantageScore offers additional features, such as predictive scoring and a 24-month review of credit history, that the classic FICO model doesn’t incorporate. Here are some of the main differences between the two competitors.

VantageScore

FICO

Score range is from 501 to 990 VantageScore uses letter grades to spell out your credit health: 901-990 = A or Super Prime, 801-900 = B or Prime Plus, 701-800 = C or Prime, 601-700 = D or Non-Prime, and 501-600 = F or High Risk. Takes into account 6 components of your credit report: payment history, utilization, balances, depth of credit, recent credit, and available credit. VantageScore claims to score thin file consumers more accurately by providing predicative scores for consumers with limited histories Additional features: VantageScore is based primarily on the last 24 months of actions on a consumer’s credit file Keep in mind, your VantageScore will still vary between the three credit bureaus. While they use the same scoring model, the information on your credit report may differ from bureau to burea

FICO range is from 300 to 850 No letter grades for FICO Takes into account 5 components of credit report: payment history, amount of debt, credit history, types of accounts, and inquiries. Thin file consumers often cannot generate a credit score at all, or are scored with inflated, high scores because they have few credit actions on file

Bottomline

The VantageScore’s particular credit scoring method is especially good news for thin file consumers and consumers who may have prior negative actions against them but have a good, recent credit history.

VantageScore is one of dozens of models in use. Whether you choose to check your VantageScore, FICO, Experian, or any other score, what is more important is that you monitor and manage your credit health by checking your credit score every few weeks. Keeping track of your credit score over time, not just once or twice, will give you your most valuable insights into how to adjust your credit habits to build towards a healthy score.

29 July 2011 2:01pm - Credit Card & Credit repair - Money online - Uncategorized

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