It's fair to say that credit is a concept quite simple in theory but potentially mind-boggling and intricate when it comes to practice. The same statement applies to the traditional credit scoring models that have been posited as the norm - by the financial sector at large as much as their own developer, the Fair Isaac Corporation - over much of the past 30 years. The benefits of a personal financial situation meeting the agreed-upon definition of "good credit" are obvious, but what really makes a credit score tick is more complicated.
The methodologies of FICO scoring - which is what many people still think of upon hearing the phrase "credit score" - are sometimes tricky to navigate. As such, comparing and contrasting it to other kinds of credit scores, to determine which is best for you, can be similarly complex. Today, we'll take a look at what is assessed by the two best-known mainstream credit scores, and then illustrate how an alternative credit report differs from those and may be best for today's consumer.
"FICO scoring and alternative credit models differ in many ways."
What FICO is really made of
Since developing its scoring model in the late 1980s and releasing it for analytics use by Equifax, Experian and TransUnion in 1991, the essential makeup of the basic FICO hasn't changed much. Payment history counts the most, making up 35 percent of the total measurement. The next 30 percent is accounts owed, with the length of your credit history constituting 15 percent. Finally, both new credit and "credit mix" - the variety of credit types a person uses, ranging from straightforward credit cards to retail accounts and loans - are 10 percent each. The final number ranges from 300 at lowest to a peak of 850.
As The Simple Dollar points out, there are numerous FICO variants from the traditional model described above. You'll likely only encounter the best-known version as a consumer, as the other scores assess factors like fraud, the financial well-being of small businesses, insurance and more.
PRBC vs. VantageScore: A response from the Big Three
As nature abhors a vacuum, so too does the market almost invariably detest a monopoly - which is what FICO effectively had in terms of credit scoring. In 2005, PRBC joined the party, touting our own free credit-reporting tool that focus on no-traditional data. We realized that the traditional definition of credit was leaving so many consumers behind. People grew suspicious of banks and lenders after the Great Recession and began relying on cash, basic checking and debit, with the occasional dabbling in short-term credit. These individuals were - and are - hard workers with stable jobs, but if they rent instead of make mortgage payments and don't use credit cards, they hardly show up to FICO.
That's precisely where our platform comes into play. PRBC's credit decisioning tools count rent payments, utility and cell phone bills, rent-to-own, insurance payments and many other representations of one's ability to repay that the Big Three sometimes ignore.
Equifax and their compatriots in the aforementioned Big Three credit unions devised a propriety model of their own a year later, called VantageScore. This tool resembled FICO in that payment history is most important, with the share of your credit limit used, length of credit history and variety of credit types (credit cards, a mortgage, vehicle financing, et. al.) all coming in tied for second place. On the other hand, PRBC focuses on the consistency of repayment of other bills, offering convenience and efficiency to our customers of various financial backgrounds.
PRBC offers the support you need to establish strong credit through alternative data. Working toward financial solvency can be a steep climb, but we're happy to help you make it.