A Publication of WTVP

Ever wonder how a creditor decides whether to grant you credit? For years, creditors have been using credit scoring systems to determine if you’d be a good risk for credit cards and auto loans. The FICO score has been the single most important arbiter of credit rating until now.

FICO scores, developed by the Fair Isaac Corp., which created the scoring methodology 17 years ago, factor in a customer’s payment history, the amount of debt owed the length of a customer’s credit history, and the types of credit used. The nation’s three largest credit bureaus recently unveiled a new credit scoring system they believe will make it easier for lenders to determine a borrower’s credit risk. As many of us have discovered, credit scores from Equifax, Experian, and TransUnion can produce widely varying results because each company collects data differently. Since some accounts may be listed at one bureau but not the other, a consumer may get different scores from each agency. In contrast, the new scoring system, called VantageScore, uses a single procedure for each of the big three credit reporting agencies to calculate scores, which they believe will reduce the differences among the scores by as much as 30 percent.

VantageScore will compete directly with FICO, currently used by most lenders. The new credit scores will be issued on a scale ranging from 501 to 990, with the higher scores indicating better credit worthiness. To help consumers better understand the scores, they also are assigning them letter grades: a score between 901 and 990 is an A, 801 to 900 is a B, 701 to 800 is a C, 601 to 700 is a D, and 501 to 600 is an F.

To avoid confusion, disappointment, and higher interest rates as a result of the new VantageScore Credit Scoring System, consumers need to take the following precautions:
• Get a copy of your credit report, including your credit scores, from each of the three major credit bureaus. Consumers can request a free annual copy of their credit report from each of the three credit reporting agencies. Call 1-877-322-8228 or go online at www.annualcredit
• Dispute any errors in writing via certified mail right away, and request an updated copy of your report.
• Before applying for any credit, ask the creditor which credit scoring system model they use for analysis.
• Know the difference in credit scores: FICO credit scores range from 300-850, where Vantage credit scores range from 501-990. A “high” credit score of 740 with FICO would only be marginal under the new Vantage system.
• Don’t close credit accounts to try and improve your credit score; it could end up hurting it.
• Keep credit card balances to 30 percent of credit card limit.
• Pay your bills on time. IBI