Types of Credit Scores

Why there are So Many Credit Scoring Models?

Types of credit scores…

There seems to be an ongoing battle, regarding credit scoring, and it may be causing you some confusion. I hope this article helps to clarify your questions regarding credit scoring models.

Basically, there are three credit scoring models that each use information from the three national credit reporting agency databases (Experian, Equifax, and Transunion). Initially, Fair Isaac Company developed the FICO scoring model. They designed a proprietary formula to "predict" the consumer's probability of repaying loans based upon data from the consumer's 3 credit reports.

Experian, Equifax and Transunion initially cooperated with Fair Isaac Company and "re-sold" the FICO scores to their respective customers for a fee. As a consumer, you could get your FICO scores directly from Fair Isaac Company as well. Also, lenders could go directly to Fair Isaac Company for your FICO credit scores.

Things went well until the 3 credit reporting agencies got smart and decided to get in on higher profits for themselves. They figured that since they had your credit information in their databases, they could develop their own scoring model to compete with Fair Isaac Company. So, they got together and each started marketing the Vantage Credit Scoring model. For a while they sold both the Vantage Scores and the FICO scores.

By then, Fair Isaac felt it was unfair (i.e. violation of anti-trust laws) for the 3 credit bureaus to gang up and market their own scoring model, so it sued all three. Experian got upset about the suit and decided to develop their own proprietary scoring model and branded it as the PLUS scoring model.

Then in February 2009 Experian notified Fair Isaac Company they would no longer market the FICO scoring model to their consumer customers.

Each scoring model uses data from all three credit reporting agencies but they each have their own proprietary formulas for calculating the scores. Also, they each have different scoring ranges which can change from time to time:

FICO= 350-850

Vantage= 501-990

PLUS= 330-830

So you can see, there are many types of credit scores being used for multiple purposes. So your best strategy is to select the scoring model most widely used by lenders and focus on improving your credit information with the three major credit reporting agencies.

Because regardless of the types of credit scores used, the credit information in the databases is key. Also, this is where you as a consumer have some legal recourse (i.e. Fair Credit Reporting Act).

This may seem somewhat confusing, but just remember to keep your eye on the ball. Improve your credit information and your credit scores will follow.

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