Fri 24 Mar 2006
Meet the New Credit Score
Posted by coglethorpe under Debt
Maybe you keep track of your credit score. Maybe you don’t. Either way, look out kids, there’s a new score it town!
Traditionally the “credit score” most of us refer to is the “FICO” score, developed and marketed by Fair Isaac. Currently the FICO score consists of five parts (from Fair Isaac):
- Payment History (35%)
- Amounts (30%)
- Length of Credit History (15%)
- New Credit (10%)
- Types of Credit in Use (10%)
The thing that the major credit reporting companies (and probably some consumers) didn’t like about this score is that it would show different scores from different companies. It ended up highlighting the facts that the three companies don’t get complete - and have been known to often get wrong - information about you and your credit.
One way to resolve that would be to help clean up credit information and for each of the three companies to make sure the information was complete. (Tip: if you have errors on your report, the FTC has a page that might help) Another way would be to work together to come up with a scoring system that would mask differences in the data they have on you.
They chose the second way and came up with their own scoring system, called VantageScore.
But what constitutes the new score? The fact is, the three major credit reporting companies aren’t telling - at least not right now. That’s a disturbing fact, if you ask me. The other thing that disturbs me is that the three major companies have worked together on this score. A score that makes them all look virtually the same to an outsider. What we could end up dealing with is one huge virtual company with a monopoly on your personal financial information.
And as Michelle Singletary says on the Washington Post, it’s garbage in, garbage out. No matter what credit score system is used, it will only be as good as the data provided. If errors persist in credit files, scores will continue to provide a bad profile of your credit. That’s bad news because those credit reporting errors are more common than you might think and could cost you more than a lost loan.
Fortunately, it is easy to get a copy of your credit report annually. I look forward to a day when I won’t worry about all this so much, but for now we will all have to keep our eyes open when it comes to our credit scores and reports.
