Since the 1950’s, Fair Isaac Corporation, (FICO) has been the major system for determining our three digit credit scores. Now, the three major credit repositories, Trans Union, Equifax, and Experian, all multi-billion dollar corporations, have pooled some of their considerable resources to create a new scoring system that incorporates a variety of factors not present in the FICO scoring system.
To understand this better, we need to briefly review some history. In the 1950’s credit histories were pretty basic. Just like today, it was divided into two principle categories, secured credit and unsecured credit. The former consisted of mortgage loans, personal loans and small business loans. The latter was pretty much limited to department store charge cards that don’t have nearly the advantages of a modern credit card. So for those of you born after the 1970’s, believe it or not, credit cards didn’t exist!!
The original FICO scoring system was based upon the above and the formula was based upon evaluating your debt ratio and your payment history at a point in time, I.E. the day the report was pulled. Then credit cards came into the picture and the various elements that comprised the system had to be significantly revised over the years, but the basics haven’t really changed. It still relies on evaluating your credit worthiness on a specific date. The link below shows us how Vantage Score changes the parameters of the formula to a more predictive system based upon more granular data.
As the fact sheet indicates, “it reduces the model’s sensitivity to highly volatile behavior that can be found in a single timeframe, making it more stable, without regard to fluctuations in the economy.” Let’s take an example. You spent a small fortune for Christmas and you realize you need a bill consolidation loan. You go to your local bank and apply. The loan officer “pulls” your credit report and you find out your FICO score has dropped fifty points since you last looked at it. Understandable. Your debt ratio has increased considerably due to your shopping spree and since FICO only scores you for that point in time you may be in trouble.
Vantage Score evaluates your entire payment history over a much wider time frame and gives you credit for the whole picture, leveling out any short term fluctuations in your debt ratio. Vantage Score claims that it delivers superior