According to the Fair Isaac Corporation, in the 1950’s, Bill Fair and Earl Isaac founded the company, which introduced a new concept of credit scoring to credit grantors. In 1981, FICO introduced the first credit bureau risk score. Today, the predictive analytics company works with businesses in more than 80 countries to determine creditworthiness.
FICO Score Analysis factors payment history, amount of debt, length of credit history, new credit and types of credit used to determine an individual’s risk score. Long credit history, no serious delinquencies and recent credit card use help boost a FICO score, while high credit usage, recent collection and bad payment history have negative impact. Factors also include how many times lenders have requested information about your credit. Scores range from 300 to 850 and the higher the score, the better.
Certain information is not included or factored in a FICO score, however. According to the Fair Isaac Corporation; race, color, religion, national origin and marital status are prohibited by U.S. laws from consideration. Other factors omitted include age, salary, occupation, title, employment history, where you live, interest rates being charged, and child/family support obligations. Consumer-initiated inquiries, such as ApplyConnect resident screening for landlords and real estate agents, are not included. Pre-approved credit offers and administrative inquiries are also not factored in the FICO scoring model. As the Fair Isaac Corporation provides predictive analytics to determine a consumer’s creditworthiness, information that is determined not to indicate future credit performance is also not included. If an individual is participating in credit counseling, it is not reported.
While the FICO credit score is the original, many factors are overlooked by the Fair Isaac Corporation that are taken into account with the VantageScore scoring model. VantageScore was founded by the three national credit reporting bureaus: Experian, TransUnion and Equifax after concern was raised about the original ways of scoring consumers.
Launched in 2006, VantageScore has a scoring range between 300 and 850, mirroring the FICO model. This model, however, more accurately reflects the society, circumstances and economic realities of today’s consumers. Unlike the FICO score, VantageScore 3.0 has the unique ability to score up to 35 million more consumers by analyzing at least two years of consumer credit data. This allows those with minimal credit history or no recent credit history to be scored by accessing a much more comprehensive data set. Landlords and real estate agents who screen applicants using the VantageScore 3.0 scoring model drastically increase their applicant pools by scoring those who were previously deemed unscorable.
According to VantageScore Solutions, LLC, the scoring model promises to be more predictive and consistent by using more granular data from Experian, TransUnion and Equifax. By electing to use more granular data, the VantageScore 3.0 scoring model delivers clarification and separation between real estate loans, such as a first mortgage and lines of credit. This results in a scoring model that is more accurate and stable than the old ways of determining creditworthiness. This revolutionary scoring model easily differentiates the various types of real estate loans such as lines of credit versus home equity loans. The same is true for installment loans, such as auto, personal and student loans.
These two scoring models are used each day to determine credit worthiness of consumers. A better understanding of the contributing factors and approach to make the determination can help individuals better understand how their habits contribute to their risk score. With risk scores and creditworthiness playing a significant role in the rental application process, a solid understanding of the scoring models can provide both applicants and property managers with an advantage.
by: Laura Mowry