How Bad Credit Affects Your Credit Score (Part 2/3)

Part 2:  Breakdown of your VantageScore

In Part 1 we covered the make up of a Fico Score. By the way, I didn't mention it, but FICO stands for Fair Isaac Credit Organization.  It is the most widely used credit scoring model in the world. FICO Scores range from 300 to 850.  It is rare to have a score in the 800's and terrible if you have a score in the 300's.  I see more reports with no score at all than anything under 400.  In fact, I think the lowest FICO Score I have ever seen was 411.  That was MY score at one time long ago, but in less than 2 years, I had it up to almost 700.  It wasn't hard at all.  Removed the BK, removed all the bad stuff linked to the BK, and got some little credit cards, used them and payed them regularly.  I don't worry much about my credit anymore. I rarely use it and when I get irritated with a creditor that is not complying with the law, being completely unscrupulous, I take revenge.  I warn them, refuse to give them another dime, then start hitting them with validation till they go away!

Enough about me, lets get to Part 2.  We are going to talk about another up and coming credit scoring model that is gaining popularity.  This is called a "VantageScore".  A number of years back, the 3 major bureaus, Experian, Equifax, and TransUnion, joined together to create a scoring system that merged their 3 scores.  It launched in March of 2006.  You don't hear a lot about this scoring model. It is my opinion that they started this system because they wanted to get a cut of the moolah that they saw FICO getting from the use of their scoring system.  Though they "merged" their scores, your VantageScore for each bureau may be a bit different than each other because not all creditors report on all 3 bureaus and sometimes when they do report on all 3 bureaus, they don't report exactly the same things, so the 3 bureaus usually have 3 different scores on them.

The VantageScore is made up of 6 categories.  These categories are A) Available Credit; B) Recent Credit; C) Depth of Credit; D) Credit Balances; E) Utilization; and F) Payment History.  It is also a numeric scoring system that gives you a grade, like a school report card. The scores range from 500 to 990. The breakdown of the numeric scores that translate into "grades" is the following:  

• 900-990 = A
• 800-899 = B
• 700-799 = C
• 600-699 = D
• 500-599 = F

You have to be careful when you look at your credit score. See, a great FICO Score, anything over 700 is A to A+ credit.  But, a 700 score using the VantageScore model is a C- and not really that great. Its not terrible, just not real good credit.  This score would cause a creditor to really review your credit report and paying habits before agreeing to lend credit to you.  Always find out which model your score is based off of, so you know whether or not that great score is actually great, or really just a mediocre or even a "failing" score.  VantageScore is also more affected on your last 24 months of reporting, but older accounts do still figure into the scoring a bit.  Now I'm going to explain the 6 categories of the VantageScore. The percentage stated is approximate.

1. Available Credit makes up 1-7% of your VantageScore.  This is the ratio of credit limit to credit balance, or basically, the difference between your credit limit and your credit balance of all lines of credit that are reported.
2. Recent Credit makes up 10-30% of your VantageScore.  This is where your recent inquiries and recently opened credit lines affect your score.
3. Depth of Credit makes up 8-13% of your VantageScore. This is where you are scored based on the different types of credit you have.  Again, this would be charge cards, credit cards, revolving, installment, etc. Lenders want to see that you can handle maintaining and paying for different types of credit on a timely basis so they can evaluate your credit risk. They don't want to see "collection accounts," as these are 3rd party collection companies and always bad.  I believe this section is also where you are graded for having older lines of credit. The more long standing credit lines you have, especially if they are positive, the higher you score in this category.
4. Credit Balances make up 9-15% of your VantageScore. This is where you get scored for recent balances.  They want to see your balances go down, which show you are making timely payments.  If recent balances are going up, that means you are either using your credit or you are becoming delinquent on your payments. Balances that go up because of credit usage is not necessarily bad, but definitely is if you are consistently using it and just making minimum payments.  That's when it starts looking like you are using credit to pay your bills, which in turn makes you a higher credit risk, and lowers your score.
5. Utilization makes up approximately 23% of your VantageScore. This is very similar to the Credit Balances category, in that your balances are affected by the usage of your available credit.  They like to see you using your credit. But they like to see it used responsibly and paid for in a timely manner.  When you're trying to build your credit score, this is one of the ways to do it. Use your credit and pay more than the minimum every month for at least 6 months, and make those payments on time.  You will see your score strengthened and going up.  Just like I talked about in Credit Balances, too much utilization of your available credit and only making minimum or being late with payments, or not making them at all is going to affect your credit score very negatively, and this category's scoring weight is fairly high.
6. Payment History makes up 28-32% of your VantageScore. This is another "biggie" category. This is where your late payments, collections, charge offs, collections, etc. all greatly damage your credit score.  The scoring weighs heavily in this category also, so if you consistently make timely payments on your credit lines, the higher your score will be.  1 thing about payment history and the difference between the VantageScore and FICO, is that VantageScore is directed and effected mostly by the last 24 months of all credit activity.

If you want your FICO Scores from all 3 bureaus, you will have to get a credit report from a mortgage lender (you pay for it so you get a copy) or auto dealer (they usually wont give you a copy), and those are about the only 2 places you can get all 3 FICO Scores.  This is because Experian does not allow FICO scores to be sold to consumers for their reports.  Again, I suspect its mainly because they are trying to bump out FICO and make money selling scores based off their own VantageScore model.  You can buy your FICO  scores for the other bureaus from MyFico.com or you can buy your credit reports with your VantageScore from all of the bureaus. 

When you buy your credit reports, maybe a credit monitoring service, the credit score you always get is a FAKO Score.  A FAKO Score is a Fake FICO Score and VantageScore is a FAKO.  Since lenders almost always determine credit worthiness off of FICO Scores, it will most likely not be what you're seeing on your freebie or bureau reports.  It will usually be the VantageScore, and it will not be the same score your lender gives you from the reports that he pulls.

If you want a free credit report with free credit score - yes it will be the FAKO, VantageScore, you can go to CreditKarma.com for your TransUnion report and you can go to Quizzle.com for your Experian report. You can check them anytime, all year long, but Experian's only updates once every 6 months, while TransUnion lets you update your report all year long.  You must use these 2 websites though to get the scores and get the updates.  You won't be able to get the scores for free from annualcreditreport.com.  You will only be able to pull your free reports from there once a year and you will have to buy your score because that site does not give it for free.

I hope you learned a lot from these first 2 parts.  Stay tuned for Part 3.  I will be discussing, or maybe I should say, giving you my best effort of how bad credit habits hurt your FICO Score.  I will attempt to show how many "Damage Points" it costs you for different "baddies" on your credit report.