Many might be wondering what credit score model is all about, now worry less because in this article we will be explaining what credit score model is all about, also we will bring to your knowledge the different types of credit score models and their differences. But before we talk about the credit score model let’s get to know what credit scores mean.
Meaning Of Credit Score
We can say that a credit score is a 3-digit numeric that reflects the probability that a consumer will repay his debts. With so many scoring approaches used to decide your credit score, the variety of models means your score can vary several points, depending on whose model is used and what type of business or organization, e.g. department store, car dealership, bank, is soliciting for it.
Example of a Credit Score image
Bad credit: The bad credit score ranges from 300-629, can make it difficult to qualify for the credit, leaving you with few good options when you need to borrow money.
Fair credit: It ranges from 630-689, gives you more options, but you’re likely to pay higher interest, also will have a limited choice of credit cards.
Good credit: In the 690-719 range, can give you lower interest rates and more choices.
Excellent credit: This is the highest of the ranges, it ranges from 720 and above. This score can give you access to most rewards credit cards and of course, the lowest interest rates offered.
It takes good spending habit to gain the Good and Excellent credit score.
Meaning of Credit Scoring Model
Credit scoring models are statistical breakdown used by credit bureaus that evaluate your deserving status to receive credit.
The agencies select statistical attributes found in a person’s credit payment patterns analyze them and come up with a credit score. Scoring calculations are based on all your payment records like;
- Credit charge-offs.
- Number of credit cards held.
- Frequency of payments.
- Amount of debts.
Credit scores commonly range from 300 (low end) to 850 (top end). Lenders use credit scores to help decide the risk involved in making a loan, the terms of the loan and the interest rate.
The higher your score, the better the terms of a loan will be for you. There are different credit score models, and this is where the different types of credit scores come in, which highlights different representatives.
Types Of Credit Score Models
- Fico scoring models
- Vantage score model
- TransRisk model
- Experian’s National Equivalency Score model
- Credit Xpert Credit Score model
- CE Credit Score model
- Insurance Score model
- Differences In The Credit Score Models
Each of these Score Models has its ranges different from each other.
Fico Scoring Models
The FICO scoring model is said to be the most reliable because it has the best track record. It has been in existence since 1989 and there have been multiple modifications over the last three decades to take into account the changing factors that decide a precise credit score.
The FICO scoring model gives consumers a number between 300 and 850. A score under 600 is considered poor. A score above 740 is considered excellent. In between is considered average to above average.
Let it also be known that FICO has many versions depending on the version that a consumer prefers to make use of because not many individuals would like to upgrade to newer versions due to how expensive it can be.
When FICO releases a new version of its scoring model, lenders have a choice: Upgrade or stay with the version they have. Many lenders decide to stay with the version they have because it can be expensive to upgrade.
Vantage Credit Score Model
The VantageScore model was introduced in 2006 when the three major credit reporting bureaus Experian, Equifax, and TransUnion decided to offer FICO some competition in the credit score business. The VantageScore model looks at familiar data things like
- Paying on time
- Keeping credit card balances low
- Avoiding new credit obligation
- Bank accounts and other assets to calculate their score.
VantageScore saw some scoring changes in 2017, mostly in the area of current data, other factors unique to VantageScore include ignoring collections paid or unpaid, less than $250 and relief for accounts negatively affected by natural disasters.
The VantageScore scoring scale is the same as FICO’s 300–850, but it includes a letter grade A to F to help you better comprehend your score.
The VantageScore uses information from all three credit reporting bureaus, but weighs certain factors more heavily or less heavily than the FICO algorithm; consequently, the scores should be similar, but infrequently identical.
TransRisk Credit Score model
Transrisk Credit score model is based on data from TransUnion and determines an individual’s risk on new accounts, instead of existing accounts. Because of that specialized nature, there’s not much information available about the TransRisk score.
According to findings it isn’t utilized by many lenders, It has been reported that an individual’s TransRisk score has generally been drastically lower than their FICO score.
Experian’s National Equivalency Score Model
This credit score model has entrusted users with a score of 0-1,000 with the typical criteria of payment history. What makes Experian’s National Equivalence score unique are its
- credit length
- credit mix
- total balances
- number of inquiries
- But Experian has publicized the score’s criteria or weight. The scoring seems counter-intuitive for consumers accustomed to the FICO system.
In Experian’s system, a score of 100 means a 10% chance that at least one account will become defaulting in the next 24 months, while a score of 900 means a 90% chance of that. There is an alternative scoring method of 360 to 840 (840 is good, 360 is bad, making it more compatible with the FICO model.
Credit Xpert Credit Score Model
Credit Xpert credit score model was developed to help businesses approve new account participants. It inspects credit reports in ways to raise its score quickly or detect false information, by improving those scores, which should lead to more loan approval for customers.
CE Credit Score Model
The inventor of this scoring model (CE Analytics) was not happy with the current model of customers paying for their credit score and companies hiding how their credit scores were revealed.
This is a free service, available at Quizzle, and it’s meant to create a free, transparent and accurate credit score. There scoring is from 330 to 830. The model’s sister company, Quicken Loans, uses it in credit determinations.
Insurance Credit Scoring model
The insurance scoring model is meant for insurance companies, it is used as an insurance credit score to determine your risk as a customer. Insurance scores range from 200-997, generally, a good score is 770 or higher, while 500 or lower is considered poor, but it varies in different types of insurance. It’s wise to keep an eye on your insurance score because that’s how your premiums are resolved.
With insurance scoring model specific types of loans, such as a mortgage or auto loan or credit cards are available. It is an optimized scoring model for special credit products like auto, so if you are buying a car, the dealership or bank offering you a loan may want to know your credit history for paying off similar loans on a monthly basis. They could factor in past car loans, credit card payments or rent and utility payments to judge the risk they’re taking.
The scoring model for industry-specific scores and “classic scores” has a major difference. The range for industry-specific scores is 250-900, while the range for classic scores falls is 300-850.
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