Wednesday, July 17, 2013

Rapid Rescoring For Consumers: Credit scores

Rapid Rescoring For Consumers: Credit scores: Credit scoring is a big business, which is why there's more than one company out there offering credit scores to mortgage lenders, aut...

Credit scores


Credit scoring is a big business, which is why there's more than one company out there offering credit scores to mortgage lenders, auto-loan financers, credit card firms and insurance companies. After all, a credit score is the closest thing to a crystal ball when it comes to determining whether a person is likely to meet his or her debt obligations.
Your credit score is generated by a sophisticated mathematical formula that reduces your credit history -- found in your credit report -- to a single number. The higher the number -- your credit score -- the more creditworthy you are perceived to be, earning you benefits such as lower interest rates, lower down payments and even lower insurance premiums (high scorers tend to file fewer claims).

Credit Reports Versus Scores (Plural)
The fact is, you don't just have one credit report, you have three -- one each from Equifax, Experian and TransUnion (shorthand: the Big Three). These three major credit reporting bureaus regularly receive information from creditors and other entities about whether you pay your bills on time, how much and what types of credit you have, how much credit you've used and whether you've paid back money you owed, among other data. However, the Big Three often do not all receive all of the same data -- the information in your credit reports can vary from one bureau to another. That means one credit scoring model, say from FICO, can yield different scores depending on which credit report it reflects.
Perhaps you've heard about FICO -- the oldest credit scoring service, originally debuted by Fair Isaac and Company in 1958. It has dominated the credit-score market for decades, selling its service to the Big Three -- a slightly different version for each -- who then marketed their scores under various brand names to lenders and other institutions. FICO has also come out with a variety of other scoring models, fine-tuned to particular segments of the market (e.g., the NextGen Score for assessing consumer-credit risk, and another scoring model for insurers).

More Scores
In 2006, the Big Three launched their own credit scoring product -- VantageScore -- as a competitor to FICO. The VantageScore mathematical algorithm differs from that of FICO, giving more or less weight to different types of credit behavior. Also, FICO scores range from 350 to 850, whereas the VantageScore range is 501–990.
Also jumping in, CE Analytics developed the CE Score, which is licensed to websites including Community Empower and Quizzle and sold to lenders and investment banks, but given free to consumers. CE Scores range from 350-850.
Despite the competition, FICO is still the go-to score for the vast majority of mortgage lenders.

Checking Your Credit
Since all of your possible credit scores are based on the information in your credit reports, it is critical that the information in those reports is accurate. Fortunately, the Fair and Accurate Transactions Act mandates that each of the Big Three provide you with a free copy of your credit report once every 12 months. Before applying for a mortgage, be sure to check your credit reports and correct any problems you find -- look for outdated information, open accounts you thought you had closed, information that belongs to someone else, clerical errors, identity theft, etc.
Your credit report will indicate how you are managing your credit overall, but the Big Three won't provide you with your actual credit score unless you pony up a small fee -- usually under $10. VantageScore is the only score that Experian and TransUnion will supply directly to consumers, even though they may supply a different score to lenders. Equifax sells the actual FICO score to consumers. Or, you can go to www.MyFICO.com, sign up for a free 10-day trial of ScoreWatch® to get your free FICO score, then cancel the service within the 10-day period to avoid charges. You can also browse www.Quizzle.com and get your CE Score for free in exchange for some personal information.