The Fair Credit Reporting Act (FCRA) of 1971 was enacted to ensure that credit reports are private, accurate and available to consumers. In the 1980s, the FICO corporation (formerly Fair Isaac) developed a scoring model intended as a solution for credit reporting agencies and lenders struggling to maintain impartial and consistent consumer data required under the FCRA. The result was a credit report known commonly as a FICO score.
FICO Score Vs. TransUnion Credit Score
A credit score is a numerical value assigned consumers to rate their ability and likelihood of repaying debt. FICO scores range from 300 to 850, with higher scores indicating a lower risk for lenders. TransUnion utilizes VantageScore, a credit scoring model developed jointly with the other two national credit bureaus -- Equifax and Experian. The VantageScore scale ranges from 501 to 990, with higher scores indicating better credit. VantageScore assigns a corresponding letter grade to its numerical scores. The letter ranges are A through F, modeled after an academic grading scale.
FICO Score Factors
The five factors that make up FICO credit scores are weighted by importance. 1. Payment history (35 percent): This includes late payments and other negative records such as bankruptcy and foreclosure. 2. Amounts owed (30 percent): This indicates what is owed on all credit accounts and the proportion of balances to credit limits. 3. Length of credit history (15 percent): This shows when accounts were opened and amount of time since activity on each. 4. New credit (10 percent): This factor demonstrates consumers' recent account openings and inquiries into new accounts. 5. Types of credit used (10 percent): This details the type of accounts on a consumer's file, such as credit cards, auto loans and mortgages.
VantageScore Factors
VantageScore uses factors similar to FICO, but with different significance assigned to each: 1. Payment history (32 percent); 2. Utilization (23 percent): Amounts used or owed; 3. Account balances (15 percent); 4. Depth of credit (13 percent): The length of credit history and the types of accounts owned; 5. Recent credit (10 percent): Recent inquiries and accounts opened; 6. Available credit (7 percent).
FICO and VantageScore Benefits
Both models attest to their respective merits. FICO points to its history as the industry standard in credit scoring, as well as its 74 percent market share of the industry. VantageScore says its model is beneficial to consumers and lenders because it provides scores for consumers -- such as those with limited credit histories -- that are not eligible for FICO scores. Additionally, TransUnion, Equifax and Experian assert that VantageScore is relatively consistent across the three bureaus, reducing consumer confusion.
Impact of Credit
Credit scores have far-reaching implications. Banks and credit card companies use credit scores to determine whether they loan money to a consumer and at what rate of interest. Employers are increasingly checking scores of applicants as part of the application process, and landlords often require potential renters to meet certain credit stipulations. Additionally, scores can affect whether consumers must pay deposits for utilities or cell phone plans and help determine the rates insurance companies offer customers.
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