Friday, May 11, 2007

Your Credit Score is a C


You're probably familiar with your credit score-the little three-digit-number that lenders use to gauge your ability to pay back or receive credit and loans. The most well-known credit score is the Fair Isaac company's FICO score. The FICO score measures your credit history from 300 to 850, with most Americans scoring between 670 and 700.

But now credit scores come with numbers and letters, thanks to the new VantageScore. Developed as a joint effort by the three major credit bureaus (Experian, Equifax, and TransUnion) as an alternative to the FICO score, the VantageScore is being marketed as a much more comprehensive way for consumers and businesses to grade one's credit history.

The VantageScore ranges from 501to 990, with each score having a corresponding letter grade from F to A. The credit bureaus claim that the letter grades are something everyone can understand, as opposed to numerical scores that confuse at the first glance.

The credit bureaus also claim that the new scores will help people with bad or no credit histories get better loan rates and terms, as they score credit information differently than FICO.

Although the VantageScore is being heavily marketed as a consumer tool, it's currently targeted primarily at businesses and lenders. Experian is currently the only one of the three bureaus that sells the VantageScore directly to the consumer.

The flaw with the new VantageScore, however, is the same as with FICO or any other credit score-it's dependent on the data lenders provide. If there's an error or missing information on your credit report, your credit score will be lowered no matter how it's calculated.

Are mortgage lenders buying the VantageScore? Not as of yet. The overwhelming response from the lending industry has been that the FICO score is reliable and does the job of gauging borrowers' ability to pay loans. In other words, if it ain't broke, don't fix it.

So what's a confused home buyer to do? The VantageScore does offer consumers more options in terms of how it grades your credit history, but until it sees wider adoption by lenders, your best bet is to stick with the FICO score.

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