A credit score is a number that is assigned to an individual to indicate his creditworthiness. The number is usually contained in a credit report data, which can be obtained for free by one of the major three credit bureaus: Equifax, TransUnion, and Experian.
The three national credit reporting agencies use three scoring models, all of which use the information available at the databases of the agencies.
FICO Scoring Model
FICO is the most commonly used credit score model. The model was developed by the Fair Isaac Company and was the primary credit score method used for many years. The model uses a proprietary formula to “predict” the probability of a borrower repaying his loans based on his past credit information.
In the past, Equifax, TransUnion and Experian used FICO to give consumers their credit scores for a fee. Consumers can also get their FICO scores directly from Fair Isaac Company. Lenders can also request for the FICO scores of potential borrowers from the company.
Vantage Scoring Model
After time, the three credit reporting bureaus decided to come up with their own credit scoring model to compete with FICO. Since the companies already had consumers’ data information on their databases, they decided to develop a join credit score model. This model was marketed as the Vantage credit score. The agencies used both the FICO and Vantage scoring models for some time.
PLUS Scoring model
Fair Isaac Company saw the development of the new scoring model as a violation of anti-trust laws by the credit bureau agencies. In turn, it tool legal action against them. This legal tussle made Experian upset. To get out of the mess, Experian decided to develop its own proprietary scoring model that it named PLUS. In 2009, Experian ceased offering FICO scores to its customers. However, FICO still continues to be the most widely used scoring model and lenders still use it.
The other two credit bureaus, Equifax and TransUnion, followed Experian’s way and came up with their own scoring models named ScorePower and TansRisk score respectively. All the three credit bureaus market their own proprietary credit models together with the Vantage model.
How the Models Work
FICO and the models introduced by Experian, TransUnion and Equifax use proprietary formulas to determine the credit worthiness of a borrower. Since they use different formulas, their scores are different. They also change from time to time depending on a number of market factors and federal reserve actions.
The typical accepted scores for FICO are 350-850, Vantage scores are 501-990 while PLUS scores are 330-830. These credit scoring values are only proprietary and do not affect the chances of a borrower getting a loan. The main thing that lenders look at is the credit history of the borrower that is available in the databases of the credit bureaus.
When you want to apply for a loan, it is important to look for a credit score that the lender is working with. Most lenders still use the FICO score but you may want to ask first before you request for your credit scores.