The New Forms Of Credit Scoring And You

Copyright (c) 2010 Suzy Vanstrusen

In the past years, different types of credit scoring systems have been used in calculating a person's credit score. There was a time when the credit score was largely based on the number of credit cards owned, the amount of charges incurred each month, and the person's ability to pay them. As a result, people who do not own credit cards automatically become a candidate of a poor credit score. Consequently, people become ineligible to apply for a loan and must often turn to subprime lenders to get approved.

What about people with no credit history at all? According to a research conducted by the Fair Isaac Corporation, about 50 million Americans have little or no credit history at all and become a target to subprime or predatory lenders. Without a credit history to back them up, they cannot get an approval from the best lenders in the market. Thus, many consumers with bad credit have very little choice but to settle with subprime deals.

A New Credit Scoring

In July 2004, the FICO score model by the Fair Isaac Corporation was introduced and since then, it became the preferred way of credit scoring by the three major credit bureaus and creditors as well. What makes FICO scoring different from other methods of calculating credit score? Under the FICO method, a person's credit score is based on not just one but several factors. This includes the length of one's credit history, his payment habits, the credit line usage, employment history, loan history and other credit remarks.

Recently, Fair Isaac Corporation announced a new form of scoring based on the FICO model called the Expansion score. With this method, credit cards and loans aren't the only sources of credit considered. Instead, nontraditional forms of debts such as *** loans, utility bills, and rental fees are also considered as part of a person's credit history.

Another form of credit scoring created by the First American corporation is the Anthem Score. This method also considers rental history, child-care expenses and utility payments as important factors in one's credit score. As of this time, Mass Housing is the only known lender who makes use of the Anthem credit scoring method. However more and more financing corporations are studying the possibility of adapting this method in their systems.

The PRBC or Payment Reporting Builds Credit credit reporting agency has also come up with its own credit scoring method. This company that is based in Annapolis Maryland has a created a credit scoring system that focuses on rental and utility payments. The scores are also assigned using the letters of the alphabet, with A being the highest score and D as the lowest standing.

These nontraditional forms of calculating credit scores are still yet to be explored by lenders. Although they are being implemented by some credit reporting agencies and financing companies, The FICO score is still the one most widely used today. Hopefully, these credit scoring methods can further be developed so that a person's credit worthiness can be evaluated based on a more reliable and reasonable set of information.