Credit score system used by bureaus is new, but healthy score habits remain

The three credit bureaus, Experian, Trans Union and Equifax, have long been the keepers of credit histories for American consumers. If you pay a bill, either late or on time, take out a loan, file for bankruptcy or apply for a credit card, one or all of these three companies will have a record of it. Over time, they take these records of your financial transactions and use them to compile what is known as a credit score. This score is a three digit number that represents, at a glance, how worthy you are of receiving a loan or more credit.

Until recently, the credit scoring system has been a bit complex. Each of the three credit bureaus used a different scoring system and a different means of obtaining it. The FICO scoring model, created by Fair, Isaac and Co, remains the most popular scoring system used by lenders, but only one of the three credit bureaus used it. That made it difficult for consumers who were checking their credit reports for problems or general information to answer the simple question of “What is my credit score?”

In fact, there was no single answer to that. The answer was that each credit bureau had a different score for you, depending on which system they were using. All of that is about to change, as the three bureaus recently announced the creation of VantageScore, a unified scoring system that will be used by all three bureaus. This new scoring system was created with the hope of replacing the FICO model and with hopes of simplifying a complicated and secretive process that few people understand. The new system will offer scoring “grades” on an A-F scale, much like report cards. That way, consumers can tell at a glance where they stand.

Other than that, nothing much changes. While the bureaus aren’t willing to discuss how they will arrive at their grades using the new system, it really doesn’t matter for consumers. The rules for obtaining a top credit score will remain the same. If you want a top score, you will have to do the following:

Pay your bills on time. This one is paramount. Each time you pay 30 or more days late, you will have a dent in your score. Pay on time and all is good.

Have some “seasoned” credit - Older credit is good, as it demonstrates that you have a history of borrowing and repaying money. Lenders like a borrower who has a track record of healthy borrowing.

Have a variety of credit - Having a Visa card is nice. Having a Visa card, a home loan and a car loan that was paid off on time is better. A few utility bills that are regularly paid on time helps, too. Lenders like to see variety in credit and borrowing.

In short, for consumers, nothing changes. Take out loans that you can afford and pay them off on time. That will take care of your score, whether it is an 800 or an “A”.

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