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A new credit scoring system, which rivals the traditional
FICO score, is now available to consumers.
For $5.95, Internet users are able to check their
VantageScores online
through Experian, one of three U.S. credit reporting bureaus that
jointly developed the system. The site also includes a simulation
showing how potential actions, such as closing a credit card account
or making a late payment, could impact a person's score.
Everyone is entitled to one
free credit report each year from each credit reporting agency.
That free report, however, does not include your FICO score, which
costs from $5.95 to $7.95 depending on which agency your order it
from.
The VantageScore offer from Experian appears to undercut the cost
of getting a FICO score from Experian, Equifax or TransUnion. If
you have already used your one free report for the year or you choose
not to use it at this time, you can purchase a report and score
from any of the big three for about $15.
Unlike FICO, which is solely a numerical score, a
VantageScore comprises both a number and the letter grade A, B,
C, D or F. But while the two scoring systems may look different,
the behaviors leading to high or low scores are highly similar.
"The same traditional truths hold," says Stan Oliai, vice
president of consulting and analytics for Experian. "It's good
to have credit, but not too much. It's good to use credit, but not
too much."
VantageScore
was introduced in March by credit reporting agencies Experian, Equifax
and TransUunion, which touted it as a simpler scoring method because
it uses a single formula to evaluate consumers' debt risk profile.
Under FICO, each credit bureau uses a different method for calculating
credit risk.
Neither the credit bureaus nor Fair Isaac, which markets
FICO, make public the exact formula they use, although they do disclose
the main components. People who score high on FICO, credit bureaus
representatives say, ought to also fare well using VantageScore.
Oliai also claims VantageScore does a superior job
of evaluating the credit of so-called "thin files," or
consumers with a short credit history. The system segments people
in a particular category, such as individuals with a short credit
history or a bankruptcy filing, into high- and low-risk groupings.
Such information is particularly sought-after for subprime lenders,
who lend to people with tarnished credit records at above-market
interest rates.
Consumer confusion ahead
Consumer advocates say credit seekers could be at some disadvantage
if VantageScore gains acceptance. The advent of competing credit
scoring systems, they say, could make the already confusing task
of understanding one's credit score even more bewildering.
"Up till now, if you were given a 720, you knew
that was a good score," says Gail Hillebrand, an attorney at
Consumers
Union. "Now, in evaluating your score, you need to know
what the grading range is, and that's a new question consumers didn't
have to ask before."
Under VantageScore, credit scores range from a low
of 501 to a high of 990. Each 100-point interval corresponds to
a letter grade, in ascending order. A score of 501 to 600, for example,
would translate into a grade of "F", while someone with
a score above 900 would get an "A." More than two-thirds
of all consumers qualify for a grade of "C" or higher.
FICO scores, by contrast, range from 300 to 850, with 85 percent
of Americans coming in above 600.
What's in the formula?
In most respects, VantageScores are calculated along the same lines
as FICO. The creditworthiness formula takes into account consumers'
bill payment histories and how much debt they are carrying.
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| VantageScores |
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| With VantageScore,
the factors contributing to the score include: |
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32% payment history |
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23% utilization
of available credit |
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15% credit balances |
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13% length and depth of
credit history |
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10% recently opened credit
accounts |
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7% available credit |
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| FICO scores |
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| For FICO,
factors contributing to the score are: |
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35% payment history |
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30% amount owed |
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10% types of credit in
use |
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15% length of credit history |
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10% new credit |
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