1.         Payment History- (35%)

• Account payment information on specific types of accounts (credit cards, retail accounts, installment loans, finance company accounts, mortgage, etc.)
• Presence of adverse public records (bankruptcy, judgments, suits, liens, wage attachments, etc.), collection items, and/or delinquency (past due items)
• Severity of delinquency (how long past due)
• Amount past due on delinquent accounts or collection items
• Time since past due items (delinquency), adverse public records (if any), or collection items (if any)
• Number of past due items on file
• Number of accounts paid as agreed

2.         Amount Owed- (30%)

• Amount owing on accounts
• Amount owing on specific types of accounts
• Lack of a specific type of balance, in some cases
• Number of accounts with balances
• Proportion of credit lines used (proportion of balances to total credit limits on certain types of revolving accounts)
• Proportion of installment loan amounts still owing (proportion of balance to original loan amount on certain types of installment loans)

3.         Length of Credit History- (15%)

• Time since accounts opened
• Time since accounts opened, by specific type of account
• Time since account activity

4.         New Credit- (10%)

• Number of recently opened accounts, and proportion of accounts that are recently opened, by type of account
• Number of recent credit inquiries
• Time since recent account opening(s), by type of account
• Time since credit inquiry(s)
• Re-establishment of positive credit history following past payment problems

5.  Types of Credit Used- (10%)

·         Number of (presence, prevalence, and recent information on) various types of accounts (credit cards, retail accounts, installment loans, mortgage, consumer finance accounts, etc.)

The FICO scores range from 300-850, with the median score being 723.  However, each of the three bureaus utilizes different formulas to calculate the consumer's score, which often results in score variations from 1 - 60+ point differences.  Therefore, a consumer could have a 560 score with Equifax, a 600 score with TransUnion, and a 660 score with Experian.  It is important to note that the differences are also attributed to the disparity in the actual data reported to the respective bureaus by creditors.  Not all creditors report consumer information to all three bureaus.  Some may report to Equifax only, while others report to TransUnion and/or Experian.  The creditors are accessed a fee by each of the bureaus to which they choose to report information.  Therefore, the cost is definitely factored into the equation of which bureau(s) they choose. 

The VantageScore Model

The VantageScore model, created by Equifax, Experian and TransUnion, proposes to offer a more predictive, consistent and easier way to understand credit rating.  According to the official VantageScore website (www.vantagescore.com), the model was developed from a national sample of approximately 15 million anonymous consumer credit profiles pulled from across the three major credit reporting companies (five million from each source). The credit information included public record information, tradeline data, and inquiries. VantageScore will:

            Predict the likelihood of future serious delinquencies (90 days late or greater) on any type of account.

            Return a score range of 501-990 with a corresponding grade (higher scores represent a lower likelihood of risk):

                        901-990 = A

                        801-900 = B

                        701-800 = C

                        601-700 = D

                        501-600 = F

            Be based on a 24-month performance period.

            Include up to four score factor codes and a fifth Fair and Accurate Credit Transactions Act (FACTA) reason code.  There is also a Spanish version available.

            Be accessed from all three credit reporting companies.

In addition, the VantageScore is determined by utilizing the following SIX factors:

1.         Payment History- (32%)

            Have accounts been consistently paid in a timely manner?

2.         Utilization- (23%)

            How much of the total credit available is currently being used?

3.         Balances- (15%)

            What is the total of the current and delinquent account balances?

4.         Depth of Credit- (13%)

            How long is the credit history and is there a healthy mix of credit types?

5.         Recent Credit- (10%)

            How many recently opened credit accounts and credit inquiries are present?

6.         Available Credit- (7%)

            What is the total amount of credit that is currently accessible?

Unlike the FICO model, each of the three major credit bureaus will utilize the same formula in calculating consumer credit ratings.  The only disparity that comes into play with the final score is that based on the actual data reported to the respective bureaus.  In other words, if all creditors reported identical information to each of the three bureaus then the score will be the exact same for each.

Which Is Better?

Only time will tell which of the models will prove to be the most efficient.  Presently, the FICO model is the preferred system utilized in the marketplace.  However, the VantageScore is currently available and accessible to both consumers and lenders/creditors, although lenders/creditors are not lining up to use the new model.  Unlike the FICO model, the new model has not been tested nor tweaked in the marketplace.  So for now, the FICO model is still king but no one knows what the future holds. 

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Anita Clinton (AC) is one of the founders of the “Wealth Redemption Group,” which specializes in teaching people how to obtain wealth through real estate.  She is a licensed loan originator and can be reached at 312-246-4894 or anitaclinton@yahoo.com.