Where do the Scores Come From in Your Credit Score?
Everyone can get his or her own credit score but unlike credit reports we are not entitled to a free copy which will be issued by the credit reporting agencies once a year.
Credit scores can be availed at a reasonable fee.
Another difference reports have from scores is with regards to disputes.
As we all know credit reports contents can be disputed however this does not hold true for credit scores.
As according to the Fair and Accurate Credit Transactions Act credit score is defined as the numerical value of a categorization derived from a statistical tool or modeling system used by a person who makes or arranges a loan to predict the likelihood of certain credit behaviors, including default and the numeric value or categorization derived from such analysis may also be referred to as a risk predictor or risk score.
The first company to develop a scoring system was the Minnesota based Fair Isaac, Inc.
their scoring method included factors serving as criteria that can be found in the report.
During the 1990s this system was adopted by mortgage industries.
Recently the use of scores has become more rampant and is used by nearly all lenders to help them decide whose loans or credit to be granted or denied.
FICO is still continuing to be the dominating credit scoring method but this is not the sole scoring system.
In 2006 the three major credit reporting bureaus, Experian, Trans Union and Equifax, together created a new credit scoring system to generate scores.
It was called Vantage Score.
Vantage Score has scores ranging from 501 to 990 while FICO the digits are from 300 to 850.
For a long time, it has been an industry norm to use the FICO scoring thus it is wise to know what kind of scoring was used by your lender to know where one really stand.
This is because the Vantage Score and FICO scores use different digit-range thus having the score of 810 might appear to be high enough to be on top of the list of FICO but not really for the Vantage Score.
There are also some differences when it comes to the variables considered by these two scoring methods.
On one hand FICO scores consider 35% for payment history, 30% amounts owed, 15% length of credit, 10% new credit and 10% type of credit.
One the other hand, Vantage Score allotted 32% payment history, 23% utilization of available credit, 15% credit balances, 13% length and depth of credit history, 10% recently opened accounts and 7% available credit.
One reason why credit scores were utilized by financial institutions and lenders is because they wanted to eradicate biases along the way of the crediting industry.
If properly developed a credit reporting system can really help make decisions more accurately than an individual can.
Credit scores can be availed at a reasonable fee.
Another difference reports have from scores is with regards to disputes.
As we all know credit reports contents can be disputed however this does not hold true for credit scores.
As according to the Fair and Accurate Credit Transactions Act credit score is defined as the numerical value of a categorization derived from a statistical tool or modeling system used by a person who makes or arranges a loan to predict the likelihood of certain credit behaviors, including default and the numeric value or categorization derived from such analysis may also be referred to as a risk predictor or risk score.
The first company to develop a scoring system was the Minnesota based Fair Isaac, Inc.
their scoring method included factors serving as criteria that can be found in the report.
During the 1990s this system was adopted by mortgage industries.
Recently the use of scores has become more rampant and is used by nearly all lenders to help them decide whose loans or credit to be granted or denied.
FICO is still continuing to be the dominating credit scoring method but this is not the sole scoring system.
In 2006 the three major credit reporting bureaus, Experian, Trans Union and Equifax, together created a new credit scoring system to generate scores.
It was called Vantage Score.
Vantage Score has scores ranging from 501 to 990 while FICO the digits are from 300 to 850.
For a long time, it has been an industry norm to use the FICO scoring thus it is wise to know what kind of scoring was used by your lender to know where one really stand.
This is because the Vantage Score and FICO scores use different digit-range thus having the score of 810 might appear to be high enough to be on top of the list of FICO but not really for the Vantage Score.
There are also some differences when it comes to the variables considered by these two scoring methods.
On one hand FICO scores consider 35% for payment history, 30% amounts owed, 15% length of credit, 10% new credit and 10% type of credit.
One the other hand, Vantage Score allotted 32% payment history, 23% utilization of available credit, 15% credit balances, 13% length and depth of credit history, 10% recently opened accounts and 7% available credit.
One reason why credit scores were utilized by financial institutions and lenders is because they wanted to eradicate biases along the way of the crediting industry.
If properly developed a credit reporting system can really help make decisions more accurately than an individual can.
