May 25, 2011

Fico Credit Score Vs. Vantagescore Credit Score Your Score Is A Retail Product Just Like Oatmeal – Which Brand Should You Use

Credit scores on credit reports have been around a while, but many people have no idea where the credit scores reach from, who decides what the credit gather should be, who uses credit scores, and what you can do to improve your credit salvage. The fact is there are many brands of credit scores that have been developed by companies that compete with each other for your dollars and for your lender’s dollars.

Imagine going to the grocery store and standing in the cereal isle. The fate of your entire financial situation, your job prospects, that new car you want to finance, or your dream home mortgage approval, will be decided by which imprint of oatmeal is selected based on certain ingredients in that oatmeal. For those people who need a trusted credit score for whatever reason, you may want to take the top name brand of oatmeal with proven brand quality. For those people on a budget, who have good credit, and the credit score will come out high anyway, you may want to buy the generic mark of oatmeal.

The Two Most Current Credit Scores for Sale in the Oatmeal Isle

While there are as many brands of credit scores as there are oatmeal brands, two popular brands of credit scores are the tried and true FICO credit score and the newer VantageScore credit score. I did a little research on these two credit scores when I recently received a credit report from Experian with a credit regain that included both a number and a letter. I really had no idea what this actually meant to a lender considering a loan application.

The FICO Credit Score

A company called Fair, Isaac Company developed the FICO credit score and it is the most widely archaic credit score by lenders. You, employers, and lenders can purchase your FICO credit score to determine whether you are worthy of receiving a loan, a job, insurance, a credit card, or a mortgage. The FICO credit score is a number between 300 and 850, with the lower number suggesting you are a bad credit risk.

The FICO credit score is also used by programs like Fannie Mae that requires a FICO credit score of at least 620. According to the FICO web station, 90% of the largest U.S. banks use the FICO credit accumulate to determine your credit worthiness.

The FICO credit gather is calculated using this formula:
35% of the credit score is based on past credit history, with fresh counting more than past
30% of the credit accept is based on how much outstanding credit you currently have
15% of the credit score is based on how long you have had established credit
10% of the credit obtain is based on applying for or getting new credit in the past couple months
10% of the credit come by is based on your mix of credit: mortgage, installment loans, revolving credit cards and other unsecured debt

The median FICO credit score in the U.S. is 723. If you have questions about your FICO score or want to know more about how your FICO score is interpreted, you can download a free educational brochure at MyFICO.com. (click here to get brochure) Also at the FICO web site, you can ask that you receive automatic email notification when your FICO credit score changes. You can buy your FICO credit score for all 3 major credit reporting agencies at MyFICO.com.

The VantageScore Credit Score

The VantageScore credit score was launched in 2006 by VantageScore Solutions LLC, a company started by three national credit reporting agencies: Experian, TransUnion, and Equifax. VantageScore credit score was developed to compete with the FICO credit score. The credit reporting agencies wanted their own ticket of credit score so they wouldn’t have to pay a fee to Fair, Isaac and Company for providing the FICO credit score to lenders that pay for your credit report.

The credit reporting agencies are selling their brand of credit picture by convincing lenders to pay for and exercise their VantageScore credit scores instead of FICO credit scores. Like Donald Trump says, “It’s not personal. It’s business.” The problem for credit consumers is – it IS personal because any credit score can affect whether or not you collect credit.

The VantageScore credit score uses a number scale of 501-990 and in addition provides a letter score of A-F with A being the best score. According to the developers, their patented scoring system provides a uniform score that accounts for differences between information from all three credit reporting agencies. Each credit reporting agency can choose which credit score they want to expend. You can purchase your VantageScore credit score from any of the three credit reporting agencies.

The VantageScore credit score is calculated as follows:
32% of the credit net is based on past credit history
23% of the credit score is based on the total amount of credit you have available from your existing creditors, not including what you already owe them
15% of the credit bag is based on your outstanding balances with existing creditors
13% of the credit score is based on how long you have had credit and what kinds of credit it is
10% of the credit rep is based on the number of recent requests you have made for unique credit, including those creditors you asked but that denied you credit
7% of the credit score is based on how remarkable total credit you are capable of having given your current income situation

According to the VantageScore Experian web site, the letter gather of A-F is used in much the same way as an academic gain is used in order to make it easier for you and lenders to know where you fall on the number scale. Here is what the VantageScore credit score means:

A (901-990): You are a spruce prime credit consumer along with 11% of the population.
B (801-900): You are a prime plus credit consumer along with 40% of the population.
C (701-800): You are a prime credit consumer along with 60% of the population.
D (601-700): You are a non-prime credit consumer along with 38% of the population.
F (501-600): You are a high-risk credit consumer along with 19% of the population.

Which Notice of Credit Accumulate Do You Utilize?

There have been cases reported where a consumer’s FICO credit score has differed by as much as 20 points from the VantageScore credit score and both calculations were done using the consumer’s same credit report information. The contrast in credit scores can often times be a factor of the weights each company applies to the consumer’s credit situation.

For example, let’s say you have had good credit for a long time and most of your current credit balance is secured, like mortgages, car loans, etc. In the two credit score formulas, your mix of credit and length of time you have had good credit is given different weights:

The FICO credit score gives your mix of credit a 10% weight and the length of time you have had credit a 15% weight.
The VantageScore credit score gives your mix of credit AND the length of time you have had credit only a combined 13% weight.

The difference in the two brands of credit scores based on these two factors alone, could mean the contrast of whether or not you get favorite for a loan. It is best when you apply for credit to look at the way each credit score is calculated and determine where you are the strongest performer and get the most weight. Then, if you have a choice, use the credit gather that makes you look the best. If you get denied credit based on one brand of credit score, ask the lender to consider another sign of credit earn for their evaluation.

Another way the difference in credit scores could affect you is the amount of interest lenders will charge you based on your credit score. A difference in 20 points between the two different credit scores could mean you getting your dream house or not getting your dream house. For example, as of May 16, 2008, the interest rates and monthly payments you would be charged for a 30-year fixed mortgage based on your FICO credit score are:

Score of 760-850 gets you a payment of $1,740 at 5.6% interest
Score of 700-759 gets you a payment of $1,783 at 5.9% interest
Score of 660-699 gets you a payment of $1,838 at 6.2% interest
Score of 500-578 gets you a payment of $2,694 at 10.2% interest

For more information about what credit scores mean, how different brands of credit scores can affect you getting a loan, and how to improve your credit score, visit these sources:

The New VantageScore Credit Score
http://articles.moneycentral.msn.com/Banking/YourCreditRating/WhatTheNewCreditScoreMeansToYou.aspx

Difference Between Credit Scores
http://www.soundmoneymatters.com/vantage-credit-score/

Difference Between Credit Scores
http://library.hsh.com/? row_id=86

MyFICO web site
http://www.myfico.com/

MyFICO Credit Brochure
http://www.myfico.com/crediteducation/brochures.aspx

VantageScore web site
http://vantagescore.com/

Consumer Credit Information from the FTC
http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre34.shtm

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