Most consumers understand that credit scores seriously impact a lender’s decision to extend credit. While many people are familiar with the common FICO scoring method, most don’t realize that many other credit scores exist. While the Fair Isaac Corporation, (FICO) creates different versions of FICO scores for a variety of clients, other companies, including credit reporting agencies develop credit-scoring models for educational purposes and specific industries as well.
FICO-The Credit and Lending Industry Standard
The FICO credit score, first introduced in 1989 is most commonly used by the credit and lending industry today. The FICO name stands for the original creator of the scoring model, the Fair Isaac Corporation and is used by 90% of lenders.
FICO scores range from the lowest score of 300 to the highest credit score of 850. FICO sells its scoring formula to credit bureaus that then apply it to consumer profiles to help lenders and other creditors predict borrowing risk.
When people talk about credit scores, many times they are actually referring to the FICO credit score specifically. Though FICO is a trademarked name of a particular credit score, FICO has become synonymous with credit scores in general. To help consumers learn about credit scoring, the U.S. government provides a website with educational information about credit, and steps instructinghow to check your credit score for free, http://www.usa.gov/topics/money/credit/credit-reports/bureaus-scoring.shtml.
Other FICO Products
In addition to the standard FICO scores, the Fair Isaac Corporation has developed several scoring formulas that they sell to various lenders and credit-reporting corporations. These include FICO’s ”Beacon“ credit-scoring model used by Equifax, ”Risk Score”utilized by TransUnion and the ”FICO Risk Model“ which Experian uses. ”FICO Classic“, “FICO 8.0”, “NextGen” and “Expansion Score” have also been developed and sold within the industry as well.
In addition, the Fair Isaac Corporation creates credit-scoring models for specific industries including auto lenders, mortgage companies and credit card providers. Other scores like, ”Pinnacle“, an Equifax credit score and ”Precision“ and ”Empirica“ by TransUnion are also sold to clients in the consumer, lending marketplace.
Non-Fico Credit Scores
Many people don’t realize that there are dozens of different credit scores on the market, developed by several companies for different reasons. Some of these are created by companies and sold to banks and other financial institutions. Lenders may also create versions of scores of their own that they apply to consumer profiles to determine borrowing risk.
The PLUS credit score was created by the credit-reporting agency, Experian as a credit score simulator to help consumers better understand how banks and other lenders evaluate loan applicants. A PLUS credit score ranges from 330 to 830 and is used to demonstrate to consumers how credit scores work, and how they are applied in lending decisions.
While this Experian credit score is not actually used by banks and other lending institutions to make lending decisions, Experian states that the PLUS scoring model closely parallels the FICO scoring method used by creditors.
Vantage Score is another credit scoring model that was created by each of the three credit rating agencies, Equifax, Experian and TransUnion together. The rating system is the first of its kind developed through the collective experience of credit risk modeling and analytics. Vantage Score is sold to many banks, credit card companies and auto lenders throughout the nation.
While scores originally ranged from 501 – 990, they have since changed, assigning 300 to the lowest score and 850 to the highest, most excellent credit score. This range also more closely mimics the FICO score range and is used to make billions of financial decisions each year.
CE Score, Innovis and PRBC
The company, CE analytics developed a consumer scoring method that they sell to lenders as well. Their scores are provided free to consumers and range from 350 to 850.
Two other credit-reporting agencies, Innovis and PRBC have created scores that they also distribute within the United States. The companies are sometimes referred to as the fourth and fifth credit bureaus since they do, in fact collect data on consumers and sell information to companies in the industry.
Innovis is a subsidiary of CBC Companies that has provided credit bureau services for 55 years.
PRBC is a corporation founded in 2002 that operates as a credit-reporting agency as well.
The PRBC Corporation operates somewhat differently than other credit bureaus however, in that it allows consumers to enroll and ”self report“ payment information that is non-debt related. This includes rental payments, cable television bills, telephone bills, and insurance payments. This allows consumers to build a reputation of good payment history even if they aren’t engaged in loan contracts or own a credit card.
PRBC has developed, ”Bill Payment Score“, (BPS) that some lenders use to determine credit worthiness when applicants have very little, or no credit history to help gauge risk. PRBC also partners with FICO to provide consumer information together with FICO Expansion Score. FICO sells this product to credit providers who process many applicants with, ”thin“ or no borrowing histories as well.
When applying for a loan or other credit, the lender will check your borrowing history. The scoring method used to evaluate your application will depend on the business relationships they maintain with particular credit rating associations. Because credit scores are not completely uniform across the board, it’s important to understand which scoring models your lender is using to make credit decisions, and the way this can affect the outcome of your application for credit.