Is your credit score safe under the new system?
One thing that definitely befuddles many consumers is the credit-scoring system.
And things got a little more confusing when the three major credit bureaus — Equifax, TransUnion, and Experian — recently said they had joined to create their own branded credit-scoring model, which they hope will replace FICO, the one now widely used by lenders.
Right after the announcement, my e-mail inbox began filling up with questions about credit scoring.
For instance, one reader who has a great score was concerned the new system would hurt his ranking.
The FICO credit-scoring system, developed by Fair Isaac Corp., rates consumers on a scale of a low of 300 to a high of 850.
The credit bureaus’ VantageScore system ranges from a low of 501 to a high of 990.
The bureaus’ version is supposed to approximate a letter-grade system.
Scores of 901 to 990 would be the equivalent of an A, 801 to 900 a B, 701 to 800 a C, 601 to 700 a D, and 501 to 600 an F.
“It appears now that someone with a credit score of, say, 800 under the current system, certainly top of the line since 850 is the current ceiling, would move from a top rating to average under the new system," the reader wrote.
The two systems are not being merged. High scores under the FICO model remain high.
It is more likely that if you have credit scores in the 800s under FICO, you’ll score in the 900s with the VantageScore system, assuming the bureaus use the same or similar factors to determine people’s creditworthiness.
Folks also wanted to vent about errors in their credit files.
“Suppose a credit bureau reports information that is incorrect.
Under the federal Fair Credit Reporting Act, the credit bureaus and businesses that supply them with data are obligated to correct inaccurate information.
The act is supposed to ensure the accuracy of information contained in your credit files as maintained by the credit bureaus.
In practice, I know and many consumers have found, correcting errors on your credit report can be maddening.
The problem is that in attempting to verify information, the bureaus simply go back to the source.
They simply confirm the incorrect information in their databases.
If you find an error in any of your credit reports, the Federal Trade Commission says you should write to each credit agency requesting a deletion or correction.
Your letter should clearly identify each of the items in the report that you dispute.
Before you do that, contact the creditor supplying the incorrect data.
The law requires credit agencies to investigate disputed information and correct inaccuracies within 30 days of hearing from a consumer.
If you don’t get satisfactory action, you have at least two recourses. You can complain to the FTC
Your second option is to file a lawsuit.
Finally, those of you with great credit scores need to stop obsessing. You don’t need a perfect score to get the best credit offers.
- Source: Washington Post, via The Boston Globe, Aug. 6, 2006
