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New Credit Score System Supposed To Simplify, Not Confuse
By: Charles Essmeier
A lot has been written in the past few years about the importance of both credit
reports and credit scores. The credit report is a listing of all significant
financial transactions by a consumer and whether or not those transactions were
completed on time and as agreed. The score is a distillation of everything
contained on the credit report, boiled down to a three-digit number. That number
is supposed to indicate to a creditor or a lender, at a glance, whether or not
the consumer in question is worthy of another loan.
Until recently, the three major credit bureaus, Experian, Trans Union and
Equifax, all used different but similar systems to devise the credit score,
which ranged from 300 at the low end to 850 at the high end. The different
systems meant that a consumer checking his or her score with each of the credit
bureaus would receive three different credit scores. This led to some confusion
as to which score was the "correct" one. The bureaus have recently attempted to
solve that problem by creating VantageScore, a unified scoring system that all
three bureaus will use. This should result in a consumer receiving the same
score no matter which bureau provides it.
But this hasn't entirely stopped the confusion over credit scoring. Unlike the
old systems 300-850 range, the VantageScore uses a different scale that ranges
from 501-990. In addition to the numeric score, the VantageScore system will
also provide a letter grade, ranging from A-F, as follows:
901-990 - A
801-900 - B
701-800 - C
601-700 - D
501-600 - F
Now the source of the confusion has changed. Many people have erroneously
assumed that a score in the old system will be transferred to the new system.
That means, to their way of thinking, that a top score in the high 700s or low
80s under the old system is now merely "average" under the new one. How, people
are wondering, did a top score suddenly become mediocre?
The answer, of course, is that it didn't and that comparisons between the old
system and the new one are like comparing apples with oranges. The new system is
completely different and will use a new set of criteria to create the new score
from the ground up. A score in the 800 range under the old system will almost
certainly become a score in the 900 range under the new one. Consumers have no
reason to be alarmed, and in time, the new system will be better and more easily
understood than the old one. After all, nothing tells you that you have done
well better than being told that you have received an "A".
About the Author:
©Copyright 2006 by Retro Marketing. Charles Essmeier is the owner of Retro
Marketing, a firm devoted to informational Websites, including http://www.End-Your-Debt.com,
a site devoted to debt consolidation, credit counseling, payday loans and
personal bankruptcy. |
