Every individual is entitled to one free credit report every year from each of the three major credit bureaus Experian, Equifax, and TransUnion. The companies have long opened their doors in support of individuals wanting to keep track of what is happening in their own financial world. Any individuals report will contain a score. This so called credit score is meant to indicate how much of a risk the borrower will pose to a lender by rating the borrowers past accounts of bill payment, and scoring them.
To receive a score, the individuals past information is sent through a system called the FICO model, which will evaluate the numbers received, and present the assigned credit bureau with the appropriate score. If a borrower requests such a score of any individual from one of the bureaus, the requester will have to pay a fee to the assigned bureau, where the bureau in turn will pay FICO to calculate the score.
Recently, a new way of calculating individual credit scores has been introduced by a new company. The new scoring system is intended to either lower the price FICO charges for its services to the credit bureaus, or to cut this service completely by being able to score individuals information without the middle man.
The new system looks much like an Elementary School Report Card:
Where 900-990 equals A,
801-900 equals B
701-800 equals C
601-700 equals D, and
501-600 equals F
FICA's scoring system ranges from 300 to 850, where a score above 700 usually means that an individual will pose a low risk to the lender.
The new scoring system has caused some controversies amongst borrowers because of individuals who would have scored well within a 701-800 score in the past are now being rated within the in C score. The new scoring system is also causing confusion for lenders since they must probably start to read between the ranks in order not to rank an individual within a lower lending category or or she would have been entitled to when based on the FICA model. This new company, like others, has yet to be tested in comparison to FICO, which means that the final conclusion of either one is better then the other is still missing. It does seem however, that this new company may present a more reliable rating system when basing a lending decision with any borrower.