Did you know that there are hundreds of credit scoring models being used today?
With different lenders creating different credit score models based on their own credit criteria, it is very possible that you could have a hundred credit scores. While it is impossible to obtain or keep track of all of your credit scores, there are some that are used by most lenders, and that you should at least be aware of.
The FICO credit score is the most commonly used credit score when applying for credit or a loan. Your FICO Score ranges from 300-850, and is based on several factors:
- 35% Payment History - The most important factor in determining your FICO credit score is your payment history. Delinquent payments could stay on your report for 7 years.
- 30% Debts/Amounts Owed - Your total debt. The lower your debt, the more likely it is that your score will be higher.
- 15% Age of Credit History - The longer your credit history, the more likely it is that your score will be higher.
- 10% New Credit/Inquiries - The number of accounts you have opened recently as well as the number of hard inquiries you have.
- 10% Mix of Accounts, Type of Credit - The more varied your accounts, the more favorable your score.
However, the FICO model is not as simple as the above breakdown may seem. FICO often makes changes to its credit score model to make it a better reflection of how creditworthy individuals are. As a result, there are currently more than 50 FICO credit score models that are used for different types of debt. A different version of your FICO credit score is used for a mortgage, auto loan, credit card, and more!
The most recent change FICO has made was the announcement of FICO 9, a new FICO score, which will allow unpaid medical bills to carry a lower weight than other unpaid debts, and change the way individuals with little credit history are seen by creditors.
FICO 9 was developed because unpaid medical debt may not be an indicator of financial health, since an individual may be waiting on insurance payments before paying the debt, or may not even know that a bill has been sent to collections.
The Vantage Score is the biggest FICO credit score competitor, and in a similar manner, the Vantage Score is constantly evolving to portray a more accurate picture of an individual’s financial health. It was developed by the three major credit bureaus - Experian, TransUnion, and Equifax - and as a result can score 30 million more people than other models.
The most recent version is known as V3, and scores you on a scale of 300-850. Typically, the V3 score looks back 24 months of credit activity, although in some cases it can look back further, but accounts in collection do not figure into your V3 score.
The Vantage Score takes the following factors into consideration:
- Extreme Weight: Age and Type of Credit - This refers to your length of credit history and your account mix, and is also factored heavily into your V3 score.
- Extreme Weight: Credit Utilization - The V3 score calculates your utilization percentage by dividing your balances by your available credit. Generally, you should keep your utilization under 30%.
- High Weight: Payment History - The Vantage Score uses your payment history as the number one predictor of risk. Late payments can appear on your report for 7 years.
- Medium Weight: Total Balances - Refers to your total debt, both current and delinquent. As with credit utilization, the more you lower your debt, the higher chance you have of increasing your score.
- Low Weight: Recent Behavior - How many accounts have you recently opened? Your recent behavior includes newly opened accounts and the number of hard inquiries recently.
- Extremely Low Weight Available Credit - The amount of credit you have available to use.
The V3 score is used by Credit Karma, which provides not only your free credit score and report, but also credit monitoring and advice.
Also known as the TransRisk New Account Score, TransRisk was developed based on data from TransUnion, to determine individual’s risk on new accounts, rather than existing accounts.
Because it is based on TransUnion data only, and is geared towards new account risk, there is very little information available about the TransRisk score. Few lenders use it because of its very specific nature. Typically, those who have checked their TransRisk score report that it is drastically lower than their FICO score, which is used by most lenders.
Experian’s National Equivalency Score
The Experian National Equivalency Score was developed by Experian and assigns users a score of 0-1000, based on the typical criteria of payment history, credit length, credit mix, credit utilization, total balances, and the number of inquiries. However, Experian has never publicized the scoring criteria and weight for the score.
The scoring scale of 0-1000 was designed to be easy to use, but it is different from traditional scores. For example, a score of 100 would indicate a 10% chance that at least one account will become delinquent in the next 24 months, whereas a score of 900 indicates a 90% chance that an account will become delinquent in the next 24 months.
In addition to the 0-1000 score range Experian also provides an alternative score range of 360 to 840 in order to make the score more compatible with the FICO model. The alternative scoring model is like FICO where high scores equal low risk and low scores equal high risk (ie: 700 is good, 300 is bad).
CreditXpert Credit Score
The CreditXpert score was developed to help businesses approve new account candidates by inspecting credit reports for ways to raise its scores quickly or for false information. Basically, CreditXpert believes that, “If you're not closing 100% of your approvals, you're leaving money on the table. “
Its system automates finding ways to improve customers credit scores quickly, as well providing easy-to-understand explanations. CreditXpert believes that by improving customer’s credit scores, you can then not only approve more customers, but build trusting relationships with them.
CE Credit Score
The creator of the CE score was unhappy with the current model of customers paying for their credit score and companies hiding how their credit scores were determined. In response, he created the CE credit score and gives it away for free at Quizzle.
Individuals are scored on a scale of 330 - 830, and scores are based on the usual criteria of payment history, length of credit, credit mix, credit utilization, and total balances.
The CE score has survived partially because of its sister company, Quicken Loans, which uses it in credit determinations, and also because consumers want access to a free, transparent, and accurate credit score. CE Analytics currently offers the CE Score.
Did you know that insurance companies use an insurance score to determine how high-risk you are as a customer?
Yep, they sure do, and just like with credit scores, there are many different models that are used by different insurance companies, and for different types of insurance.
To be clear, your credit score is not the same as your insurance score, and even the scoring criteria is different. However, your credit score is taken into account when determining your insurance score.
Insurance scores range from 200 - 997, although the range will vary based on which type of insurance you are shopping for. Generally, a good score is 770 or higher, and 500 or lower is considered a poor insurance score.
Although insurance scores can typically only be obtained at cost, some sites like Credit Karma do offer a version for free, and it is a good idea to monitor your insurance score as well as your credit score, because your insurance score is how your premiums are determined.
Knowledge is Power
The credit scoring system has a long way to go before it becomes transparent and accessible. Currently, it is up to lenders to use a national score, like the FICO score, their own internal credit score, or a mix of the two.
While it would be impossible to monitor all of your credit scores, there are ways to monitor the most important factors in every score. It’s your right to get annual access to a free copy of your credit report from each of the three bureaus. You can do this at annualcreditreport.com.
Even though no lender uses the same credit score model, all scores look at the same basic information, so taking steps to build and keep strong credit will benefit you no matter which score is being used.
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