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Tracy Becker
President
North Shore Advisory, Inc.
155 White Plains Rd. Suite 203
Tarrytown, NY 10591
Co-Author
"The Credit Solutions Kit"
Phone 914-524-8300
Fax 914-524-5014
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The
Scoring Systems- An indepth view
Well it has
been quite a while now that we have been hearing about the confusion of so
many different credit scores. Not only is the average consumer
perplexed but many professionals who deal with credit and finance have
trouble sorting through the massive amount of information and constant
changes. To understand the many types of scores we must
remember facts. Scoring is a profit generated business, there
are many kinds of lenders out there, and many different reasons credit
scores are used to evaluate a consumer.
The Credit
Scoring Business has been, pretty much, a monopoly run by Fico (Fair Isaac
and Company). Fair Isaac provides a risk score tabulated by using the
information on your Equifax, Trans Union, and Experian credit
reports. This score is used by, Banks, Insurance Companies (car,
homeowner, life & more), Realtors, Collection Agencies, Mortgage
Brokers, Car Lenders, Boat Lenders, Employers, Landlords, Credit Card
Companies, and the list goes on. Fico also offers their score
to the general public for a fee as well.
Within the
Fico scores sold to lenders you will find different names for each
reporting agencies Fico score. For the most part Experian calls it
Fair Isaac or Fico, Trans Union calls it Empirica, and Equifax calls it
Beacon but sometimes you see Fico on 2 of the 3 reports. The
reporting agencies just rebranded the names of the Fico score when it
relates to the different agencies. There are also variations to the
Fico score as well: Fico Classic 04, Fico 08, Fico Classic. Other
scores sold by Fico for various purposes are Fico Credit Capacity, Fico
Expansion Score, and many more. Within each variation there are also
different Models that are chosen by each lender through a pulling service
that sells the score to the lender. The pulling service is a third
party that gets the info from the three reporting agencies, Experian, Trans
Union, and Equifax. They process this information through the Fico
scoring formula and model to deliver the score to the Institution that is
paying them a fee for the data. Just like any business if you
limit yourself to one product it can inhibit your profits. When Fico
offers many variations, with different reasoning behind the new choices, it
gives them more opportunities to sell and make profits.
The credit
reporting agencies also offer their own scores (for educational purposes)
to the general public. These scores are called Plus scores, Risk
scores, Experian scores, Equifax scores and more recently there has been
the Vantage Scores. The Plus scores range from 330 to
830 and and are usually 40 points higher then Fico scores. The
VantageScore ranges between 501 to 990 and have a grade rating as
well. The Fico
scores range from 300-850. When you order your scores from sites
online such as annual credit or free credit report (if they don't say Fico
scores) they are usually around 40 points higher then Fico. The
Vantage score was not only created to educate the general public but was
introduced to compete directly with Fico by selling to lenders as
well. To give you some insight into the numerical difference of these
scores if all things were equal a Fico score of 750 would translate into a
Vantage score of 901.
Complex isn't
it? It is complicated but hopefully you have a little insight into
the variety and differences of numerical scores. Going back to
Vantage Scores, when Experian tried to get a percentage of Fico profits
from selliing its info to the consumer Fico said NO! In Feb. 2009
Experian declared it would no longer allow Fico the use of it's info to
sell Experian Fico scores to the consumer. If you went to myfico.com
to order your Fico scores you would no longer be able to buy your Experian
Fico score. We will continue to write, in more detail, about
models, scores, and variations in the coming 4-5 weeks. Feel
free to call us if you have any questions.
Copyright
©2009 North Shore Advisory Inc.
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