Credit scoring started in the late 1950’s to support lending decisions in large department stores. The concept was revolutionary and by the end of the 1970’s most of the nation’s largest commercial banks, finance companies, and credit card issuers used credit scoring. It became widely accepted once Fannie Mae and Freddie Mac fully endorsed the use of the FICO score for home mortgage lending.
The FICO score was first created in 1956 by William Fair and Earl Isaac when they created their company Fair Isaac Corporation (FICO). Their system used a mathematical model (algorithm) and a computer to help depict consumer lending risk. To be more specific, the FICO score originally was designed to represent or predict a consumer’s risk of going 90 days late on an account within the next 3 years.
Until 2001 consumers were not even allowed access to their credit scores. This changed when California adopted a law stating consumers were entitled to know everything about what is on their credit reports.
At the same time FICO started developing customized scoring models for each individual credit bureau. Today each bureau still has their own specific FICO designed score. Which is one of the reasons why you will very seldomly see all three of your credit scores be exactly the same at the same time. Equifax commonly names their score model BEACON. Experian many calls their model Experian/ Fair Isaac Risk Model. And Trans Union has named theirs simply FICO.
Even though the bureaus have their own FICO models, in 2006 they decided they wanted a bigger piece of the pie and announced their intent to design their own credit scoring model. Today that model is known as Vantage Score and is offered on the credit monitoring sites owned by the credit bureaus. The intent of the bureaus is to have Vantage Score widely accepted by lenders to eventually replace the FICO score.
Even though the bureaus have their own FICO models, in 2006 they decided they wanted a bigger piece of the pie and announced their intent to design their own credit scoring model. Today that model is known as Vantage Score and is offered on the credit monitoring sites owned by the credit bureaus. The intent of the bureaus is to have the Vantage Score widely accepted by lenders to eventually replace the FICO score.
Vantage score is VERY different than FICO. For one, FICO’s credit scoring scale ranges from 350-850 while Vantage ranges from 500-990. This is a BIG difference in credit scoring and can be very confusing to consumers and lenders. A 700-credit score with FICO is “A” credit, but with Vantage a 700 score would be classified as “D” or poor credit.
There are also many different algorithms used by the FICO depending on why a credit report is being pulled, an example maybe someone looking to open a $1500 Revolving Account with a department store is going to get a much different score than if they are applying for a $35,000 car loan, simply because of the type of account which is being applied for.
And those “free” credit score offers should not be looked at as anything but a possible trend of how your scores is going due to the fact that when you are looking at those sites and requesting your score(s) you are not even applying for anything, so there is no risk calculation used in that particular algorithm. Stick with a TriMerge Mortgage Credit Report for the most accurate FICO scoring for yourself.
FICO now competes with Vantage Score but Equifax, Experian, and TransUnion still offer both score options. This is partly because FICO is so widely used and accepted by commercial lenders and is the only credit scoring system recognized and used by the Federal Government when determining the credit worthiness of a consumer for a government-guaranteed loan.
The goal of the credit bureaus has been to wean users off the FICO model and start using Vantage Score instead due to the fact that the credit bureaus have to pay FICO a royalty each and every time a FICO score is pulled.
However, due to the overwhelming majority of lenders and credit issuer’s familiarity with the FICO model, the Vantage Score has not taken the credit world by storm as fast as the “Big 3” would have liked
All three credit bureaus now offer Vantage Score in addition to FICO score to calculate the credit scoring, instead of only offering FICO.
When using “programs” such as Credit Karma, and MyFreeCreditReport.com the consumer will think that they are looking at a FICO score, but in reality, what they are looking at is the Vantage Score generated by the credit bureau.
This by the way is designed to generate a higher score than a FICO score and in the opinion of this writer is done so on purpose to give a consumer a false sense of what his/her credit scoring really is.
In reality, it really makes no difference in credit score variations. Credit score variations are inevitable because the data the credit bureaus collect is still derived from different sources, not all data furnishers report their information to all of the credit reporting agencies.
So, the problem of varying credit scoring will not be solved by the new Vantage Score.
The three bureaus are branding the Vantage Score as something that will help banks and lenders further hone the subprime categories. Subprime lenders are those banks and lenders dedicated to borrowers with poor credit or harder-to-approve loans. Subprime loans have higher interest rates and fat lending fees.
In today’s credit-crunched economy, this is a fast-growing market and the credit bureaus are hoping to use that as a selling point for Vantage Score. Slick marketing!
Unlike FICO’s traditional 300 to 850 scale, the Vantage Score goes from 501 to 990. Here is a breakdown of the credit scoring with the respective rating:
As one can see, simply by virtue of the Vantage Score scale starting 351 points higher than the traditional FICO Score scale, a consumer may look at a Vantage Score of 680 and think that is a pretty good score, but in reality, that would equate to much lower FICO score. It can all get very confusing and unfortunately (in the opinion of this writer) that is exactly what the credit bureaus are going for.
For additional information and help regarding any credit issue please feel free to contact The ASCENT Network.
Credit scoring started in the late 1950’s to support lending decisions in large department stores. The concept was revolutionary and by the end of the 1970’s most of the nation’s largest commercial banks, finance companies, and credit card issuers used credit scoring. It became widely accepted once Fannie Mae and Freddie Mac fully endorsed the … Continued
Read MoreFICO now competes with Vantage Score but Equifax, Experian, and TransUnion still offer both score options. This is partly because FICO is so widely used and accepted by commercial lenders and is the only credit scoring system recognized and used by the Federal Government when determining the credit worthiness of a consumer for a government-guaranteed … Continued
Read MoreWE COMMUNICATE WITH ALL THREE CREDIT BUREAUS FOR YOU:
