Credit scoring started in the late 1950’s to support lending decisions in large department stores. The concept was revolutionary and by the end of the 1970’s most of the nation’s largest commercial banks, finance companies, and credit card issuers used credit scoring. It became widely accepted once Fannie Mae and Freddie Mac fully endorsed the use of the FICO score for home mortgage lending.
The FICO Score
The FICO score was first created in 1956 by William Fair and Earl Isaac when they created their company Fair Isaac Corporation (FICO). Their system used a mathematical model (algorithm) and a computer to help depict consumer lending risk. To be more specific, the FICO score originally was designed to represent or predict a consumer’s risk of going 90 days late on an account within the next 3 years.
Until 2001 consumers were not even allowed access to their credit scores. This changed when California adopted a law stating consumers were entitled to know everything about what is on their credit reports.
At the same time FICO started developing customized scoring models for each individual credit bureau. Today each bureau still has their own specific FICO designed score. Which is one of the reasons why you will very seldomly see all three of your credit scores be exactly the same at the same time. Equifax commonly names their score model BEACON. Experian many calls their model Experian/ Fair Isaac Risk Model. And Trans Union has named theirs simply FICO.
Even though the bureaus have their own FICO models, in 2006 they decided they wanted a bigger piece of the pie and announced their intent to design their own credit scoring model. Today that model is known as Vantage Score and is offered on the credit monitoring sites owned by the credit bureaus. The intent of the bureaus is to have Vantage Score widely accepted by lenders to eventually replace the FICO score.
The Vantage Score
Even though the bureaus have their own FICO models, in 2006 they decided they wanted a bigger piece of the pie and announced their intent to design their own credit scoring model. Today that model is known as Vantage Score and is offered on the credit monitoring sites owned by the credit bureaus. The intent of the bureaus is to have the Vantage Score widely accepted by lenders to eventually replace the FICO score.
Vantage score is VERY different than FICO. For one, FICO’s credit scoring scale ranges from 350-850 while Vantage ranges from 500-990. This is a BIG difference in credit scoring and can be very confusing to consumers and lenders. A 700-credit score with FICO is “A” credit, but with Vantage a 700 score would be classified as “D” or poor credit.
There are also many different algorithms used by the FICO depending on why a credit report is being pulled, an example maybe someone looking to open a $1500 Revolving Account with a department store is going to get a much different score than if they are applying for a $35,000 car loan, simply because of the type of account which is being applied for.
And those “free” credit score offers should not be looked at as anything but a possible trend of how your scores is going due to the fact that when you are looking at those sites and requesting your score(s) you are not even applying for anything, so there is no risk calculation used in that particular algorithm. Stick with a TriMerge Mortgage Credit Report for the most accurate FICO scoring for yourself.