Learning More About Credit Score Systems

If you get behind on payments to a creditor or file for personal bankruptcy, will each credit score reflect your credit history in the same way? According to a recent report from NBC News, there are distinctions between new and traditional credit scores, and it is important to understand how your personal history can impact what creditors see.
Alternative Credit-Scoring Methods
As the article explains, the way in which credit scores are calculated is not the same as it used to be. If you have ever applied for credit and have had a potential creditor look into your financial history and your credit score, you may know that the three companies of Experian, Equifax, and TransUnion have been the ones providing credit reports and scores for many years now. However, “in the last few years, these companies have founded a new company, VantageScore Solutions, that provides an alternative credit-scoring tool.”
What does this new credit-scoring tool mean for you? First, the new credit-scoring measures are helpful for people who do not have credit cards. Did you know that nearly 70% of Millennials do not have a credit card? Many Chicago-area residents who have recently filed for consumer bankruptcy also are without credit cards. For anyone that does not have a credit card—on of the primary ways that companies like Equifax or TransUnion calculate credit scores—it can be difficult to get a credit score number in the traditional manner. However, given that so many Americans do not currently use credit cards, a new method can help lenders to know whether a person will be likely to repay his or her debt.
As a quick reminder, credit scores range from 300 to 850. Generally speaking, any score above 750 is typically considered to be “excellent,” while anything under 640 may present difficulties for finding a lender. However, what counts as a good credit score can be different, depending on which credit-scoring method a potential lender decides to use. To better understand what we mean, it is important to explore some of the criteria in the different credit-scoring methods available.
What Determines a Consumer’s Creditworthiness?
One of the major changes to credit-scoring methods concerns, as we mentioned above, how a person has managed his or her credit card account. Traditionally, the Fair Isaac Corporation (FICO) credit-scoring method took into account a person’s use of credit cards, mortgage payments, student loans, and other loans. In other words, FICO scores do not take into account how a person handles her rent or utility bills. In addition, FICO scores require a consumer to have a credit history that goes back at least six months. Now, VantageScore can offer a credit score for someone with “just one month of credit history,” and it can also take into account how a person handles a variety of her bills, such as her cell phone account, utility payments, and cable bills.
Regardless of the method a lender uses, however, you should know that on-time payments will always help your credit score while delinquencies will always hurt. If you have questions about how your credit score will be impacted by bankruptcy or other consumer debt factors, an experienced Oak Park bankruptcy lawyer can speak with you today. Contact the Emerson Law Firm to learn more about our services.
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