Just When We Thought We Understood Our Credit Scores…
Credit Scores Are About To Become Even More Confusing
Almost everyone knows that when you apply for a loan or a line of credit, the lender pulls your credit report and looks at your credit score. While the credit bureau determines what’s on your credit report, Fair Issac Corporation is actually the one that determines your credit score, also known as your FICO score. While our credit scores used to be a mystery, Fair Issac did a good job at educating us about what our credit scores mean and how they’re calculated. Just when we were getting the hang of navigating our credit scores, everything is about to change.
In Come the Credit Bureaus
Fair Issac makes millions of dollars each year from providing lenders with FICO credit scores. The three credit bureaus decided they wanted in on the action and each of them came up with their own credit scoring system. However, because lenders didn’t want to deal with scores ranging from one credit bureau to the next, the plan ultimately failed.
When plan A failed, the credit bureaus went back to the drawing board, decided to work together as a team and came up with a credit scoring model that all three of the credit bureaus would use together. They came up with VantageScore and are now marketing this credit scoring system to lenders, hoping to take over Fair Issac’s market share. What does this mean for you? Plenty.
Where the Confusion Comes In
The first problem is the fact that the credit rating numbers assigned by VantageScore are completely different than the credit rating numbers assigned by FICO. A FICO credit score above 720 means you have decent credit. A VantageScore rating of 720 means your credit isn’t so great.
This is because FICO bases their credit ratings on a scale from 300 to 850 and VantageScore bases its credit ratings on a scale from 520 to 990. If you apply with a lender and they turn you down because your credit rating is 650, you may get really confused, not realizing they’re not using the FICO model to determine they’re credit ratings. If you want to understand exactly where your credit score stands, you need to know which credit rating system the lender is using.
Don’t Jump Too Quickly
VantageScore is in its infancy and no one really knows whether or not the model is going to be accepted by lenders. If VantageScore fails, you have nothing to worry about. Even though you can order your VantageScore right now, I wouldn’t advice it. Unless VantageScore catches on and lenders begin using it to check credit ratings, there is really no need for you to pay money to learn your VantageScore.