New
Credit Scoring System
What Does This Mean for You?
In March, the nation's three big consumer-credit bureaus announced that
they have teamed up to launch a new credit scoring system, called
VantageScore. Experian, Equifax, and TransUnion are hoping to
give lenders a better measure of borrowers' creditworthiness and make
the process easier for everyone to understand. With the
current system, it is not uncommon to have a different score with each
of the three bureaus. VantageScore is supposed
to change that.
The three-digit FICO score (named for Fair, Isaac Corp. of Minneapolis)
ranges from 300-850 and has been the traditional score used by the
three bureaus. VantageScore will provide scores ranging from 501
to 990. The score groupings approximate the familiar academic
scale:
901-990 A
* 801-900 B
* 701-800 C
* 601-700 D
* 501-600 F
What does this mean to you? Well not a whole
lot right now. The new system won't be completely up
and running for a few months. It also doesn't mean that its
going to be automatically used by all businesses. Ultimately,
if you are properly managing your credit, it won't matter which score
is used. A good FICO score will translate into a good
VantageScore and vice versa.
While it's still unclear how the bureaus are calculating the
VantageScore, we do know that these five characteristics are used for
the FICO score:
- The age of the credit
file. Fair, Isaac's model assumes people
who have had credit for a long time are less risky
- Past delinquency. People
who have failed to make payments in the past tend to do the same in the
future.
- The way credit has been used.
Someone maxed out or close to the limit on a credit card is considered
a greater risk than someone who doesn't look at the high credit line as
a license to print money.
- The number of times a person
asks for credit. The systems frown upon those who
have initiated several requests for credit cards, loans or other debt
instruments over a short period of time.
- A customer's mix of credit.
Someone with only a secured credit card is generally riskier than
someone who has a combination of installment and revolving loans. (On
installment loans, a person borrows money once and makes fixed payments
until the balance is gone, while revolving borrowers make regular
payments, each of which frees up more money to access.)
Thanks to the FTC ruling, all Americans are entitled to receive a free
credit report each year with no strings attached. In order to get
your free credit report, you'll need to request it one of these
following ways:
www.annualcreditreport.com
(This is the only
authorized source to access your credit report online for free)
or
Call
877-322-8228
*You'll be able to order all three credit reports at one time, or at different
times throughout the year. It's your choice. But, be sure to order from the centralized agency.
If you go directly to the credit reporting agencies, you will be
charged unless you fit other criteria for a free
report.
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Improve
Your
Credit
Score!
Raise Your
Score by Following These 9 Steps:
1. Get
your own credit report here,
and find out your score
2.
Identify mistakes, and repair errors
3.
Negotiate with debt collectors first
4.
Control your spending, and reduce your debt
5.
Limit credit-card applications
6.
Don't cancel your old accounts
7.
Ask lenders to report your credit limit
8.
Sign up for automatic bill payment
9.
Monitor your report
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