New Credit Scoring Techniques
Much has been written recently about the importance of new credit scoring techniques with both credit history and credit scores. Your credit profile is a listing of all significant monetary dealings by a consumer and whether or not those transactions were completed in a timely manner and as agreed per the lending institution you received this credit from. The overall credit score is a cumulative account of everything contained on the credit report, reduced to a three-digit number that affects many regarding . That number is meant to indicate to a creditor or a financial institution, in a flash, whether or not the consumer under consideration is worthy of a new loan. Having a good credit score is vital if you want to borrow money.
Until recently, the three major credit agencies, Experian, Trans Union and Equifax, all used different but comparable systems to create the credit score, which varied from 300 at the low end to 850 at the high end. The separate systems meant that a consumer checking his or her credit score with each of the credit reporting agencies would get three different credit ratings. This led to quite a bit of confusion as to which score was the “proper” one. The credit bureaus have recently tried to solve that problem by making VantageScore, a unified scoring system that all three bureaus will use. This should result in a consumer receiving the same score no matter which bureau offers it.
But this has not completely stopped the confusion over credit scoring. Unlike the old systems’ 300-850 range, the VantageScore uses a different scale that ranges from 501-990. In addition to the numeric score, the VantageScore method will also provide a letter grade, ranging from A-F, as follows:
901-990 – A
801-900 – B
701-800 – C
601-700 – D
501-600 – F
Now the source of the confusion has changed. A lot of individuals have mistakenly assumed that a score in the old system will be transferred to the new system. That means, to their way of thinking, that a top credit score in the high 700s or low 80s under the old system is now merely “average” under the new one. How, people are wondering, did a top score instantly become mediocre?
The answer, of course, is that it did not and that comparisons between the old method and the new one are like comparing apples with oranges. The new method is totally different and will use a new set of criteria to produce the new score from the ground up. A score in the 800 range under the old method will likey become a score in the 900 range under the new one. Consumers have no reason to be alarmed, and in time, the new system will be more accurate and more easily understood than the old one. In the end, nothing tells you that you have done well better than being told that you have received an “A”.
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