NEW YORK, March 10, 2023 (Newswire.com) - Credello: Since the first FICO scoring model was released in 1989, few updates have been made to how credit reporting agencies tally your score. That's all begun to change thanks to the economic conditions younger generations face. With the lack of options for homeownership and other reasons to apply for large loans, both Millennials and Gen Z are disrupting the traditional borrowing world and forcing banks, and the reporting agencies they use for credit scores, to adjust.
Here's a quick overview of how multiple credit scoring models are coming into the mainstream and how they can affect your options for borrowing money.
A quick overview of traditional credit scoring models
Banks and lenders use three reporting agencies to pull your credit score: Experian, TransUnion, and Equifax. These agencies use one of two scoring models:
FICO - The Fair Isaac Corporation created the first credit score, and their model is the most popular method. FICO scores range from 300-850 and are based on five weighted factors:
- On-time payments (35%)
- Amounts owed (30%)
- Length of credit history (15%)
- New credit (10%)
- Credit mix (10%)
VantageScore - Created in 2006 by the three reporting agencies, this score is more weighted on your number of on-time payments than a FICO score and is easier to get (it typically takes a month to generate a VantageScore while FICO scores aren't determined until after six months). It also uses the range of 300-850 and has multiple weighted factors in determining your score:
- On-time payments (40%)
- Amounts owed (34%), which is the sum of:
- Credit utilization (20%)
- Balances (11%)
- Available credit (3%)
- Depth of credit (21%)
- Recent credit applications (5%)
The new models becoming available
As the younger generations dominate the workforce, it's becoming clear that traditional methods of generating credit scores aren't working anymore. Thankfully, new options are coming into the marketplace to make getting approved for borrowing money more in line with the current economy:
Experian Boost - Launched in 2019 by Experian, this is an optional program anyone can sign up for that wants to improve their FICO scores. The "boost" comes from Experian looking into your financial history to see how well you pay bills on time. If your history shows a strong record for keeping on track with bill payments for things like rent, utilities, streaming services, etc., you can expect an instant increase in your credit score.
UltraFICO - Launched in 2018 by FICO, fintech company Finicity, and Experian, this option utilizes your banking activity to give a more comprehensive picture of you as a potential borrower. It looks at the length of time you've had accounts other than loans or credit cards open, the recency and frequency of your bank transactions, evidence of whether or not you have consistent cash on hand, and your history of maintaining positive balances in your checking and savings accounts.
CreditXpert - CreditXpert focuses more on mortgages than general credit scores and is designed to help potential homeowners locate opportunities to get the best rate and loan terms. CreditXpert factors in both your consumer FICO score and a mortgage score lenders use to generate a more comprehensive score that helps lenders better understand you as a borrower and opens up more opportunities for you to find the best deal possible.
The bottom line
A few new models are coming into the mainstream, making how banks and lenders score your creditworthiness more in line with the current economic climate. Make sure to keep up to date on which models are being used so you can have the best chance of securing the loan you want.Contact Information:
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Original Source: How Credit Scores Are Changing to Give People More Access to Credit