Changes to YOUR Credit Score?!?
WSB's Clark Howard says, "This is a good thing for consumers!"

Credit reports are something that we never knew much about. Then over the last seven or eight years credit reports started coming into the public consciousness. Then in the last three years credit scores also became something that we were aware of. But I find there is still a lot of confusion with credit scores.

A lot of us are under the impression that you have just one score. You don't. You have three because there are three major credit bureaus. And each of them takes your information that they collect on your credit report and they mix it up in a computer and it pops out a score. The score is supposed to give someone who is thinking of lending you money a feel for how likely you are going to be to pay back your bills if they lend you money and pay them on time.

Now the problem to this point is that Equifax has used one scoring system. TransUnion uses a second one. And Experian uses a completely different third one.

Now the three companies have come together in a joint venture to come up with one score called the Vantage Score. This is a completely different scoring model than the traditional one. And what makes a good Vantage Score is completely different than what you may have been used to.

In the past if you had a score above 700 on the primary industry recognized scoring system which is called the FICO or Fair Isaac Scoring System model, a 700 or above meant that your credit standing was good. And every number above 700 meant that it was better and better.

Under the new scoring system, you'll need to have a score above 900 to have a good score. They didn't make it tougher for you to have a good score. They just changed how the numbers work. It is like it was when you were in school. A 900 or above is an "A" score. An 800 or above is a "B" score. A 700 or above is now a "C."

Now remember, before a 700 or above was top flight. 600 or above is a "D." And a 500-600 is an "F." You are dead meat trying to borrow money.

This system will still mean that you'll still have three different scores because information on a credit report from Equifax is different than information on a credit report from TransUnion and that's different from the information on Experian. So each credit report will continue to collect different information, and as a result each will generate its own score. But what the score means will be the same thing with each credit reporting agency.

Up until now if you had a 730 on an Equifax that would be a good number, but if you had a 730 on TransUnion that was not a good number. Now the number will mean the same thing no matter whom it's purchased from.

Lenders will choose whether or not they want to adopt the new system. So there is going to be a confusing transition period over the next year to eighteen months while the market place settles this thing out. Whether lenders are going to use the new Vantage Score or whether lenders are going to want to use the FICO score, I'm not smart enough to tell you which is going to emerge.

What matters for you is that if you had a good Vantage Score you will also have a good score on whatever system the lender uses. So you'll have an easy way to know if you have a good score or not. The Vantage Score system should be on the websites of the three major credit bureaus in the next 24 hours.

Credit scores are not free. Credit reports are free. Once a year, you can request your free credit report at annualcreditreport.com. This the only legitimate site for you to obtain a free report. The score is not free. Each credit bureau is free to charge you for your credit score at whatever price they want to charge you.

I hope that this makes sense. If you checked your credit score recently, for example, the last time I checked mine it was a 768 on the Fair Isaac system – from one of the bureaus which is a good score. The time before it was a 720 something, so whatever before had my score lower is no longer in play and my score is higher.

On the new scaling system my 768 will translate into a 900-something, which is basically the same score, it's just a different scale used to measure it. The key thing to remember is that each of the Credit Reporting Agencies are using the same scale.