How Credit Scoring Will Change in the Coming Years

In 1958, Fair Isaac developed the first credit score model, and in 1989, established FICO scores for general-purpose use. Since then, FICO reports are the most common document used when lenders consider your credit scores. However, the top credit reporting bureaus, Experian, TransUnion and Equifax, must pay Fair Isaac a license fee to use the FICO algorithm. So, in 2006, the three organizations united to develop their own algorithm, VantageScore. While VantageScore has caught on nicely, accounting for almost 1 billion generated credit scores in 2014, FICO remains the undisputed industry leader. That said, the next few years should see continued expansion for VantageScore — the number of banks using it grew by 24 percent in 2014 alone.

The emergence of VantageScore, which assigns a minimal amount of weight to your available credit and recent credit behavior, caused Fair Isaac to re-evaluate its FICO algorithm. In 2014, FICO scores became more in line with VantageScore in a move called FICO 9. FICO 9 considers situations such as payments made to utility companies, some landlords and cable TV companies. Among the people it benefits are renters who pay on time and who have little credit history. In general, it gives a boost to folks who tend not to use typical credit products.

About 90 percent of all credit scores are FICO, and while VantageScore and alternatives are growing, that 90 percent figure looks to stay stable.

Here’s a look at a FICO credit score breakdown:

• Payment history accounts for 35 percent of your score
• Amount owed is 30 percent
• The length of your credit history is 15 percent
• New credit is 10 percent
• The type of credit you use is 10 percent

VantageScore does not give out exact percentages, but it cites payment history as its most influential factor. Also very important are your age and credit type, and how much credit you use. Of some importance is your total debt, while your available credit and recent behavior are not too important.

How to fix your credit: These factors give you a roadmap on how to fix your credit score when it starts to go down. Here are some tips:

• Amount owed: You can fix this by paying off your debts to keep your “amount owed” numbers low, keeping your credit score high.
• New credit: Signing up for new credit cards and loans increased the amount of credit you have on hand, which can in turn raise your credit score.
• Types of credit: If you only use one type of credit (ie, credit cards), it doesn’t show lenders that you know how to use different types of credit. Diversify your credit portfolio by applying for things like car loans, mortgages, etc.
• Credit history: What’s done is done, so you can’t do much about your credit history right off the bat. It takes 7 years for negative items to fall off your credit report. However, you can dispute negative items on your credit report via the credit bureaus, and they may decide to remove those items from your report. Credit repair companies can help with that process, and are generally more aggressive about getting those items removed. Check out our credit repair reviews to see how the services work and if there is one that fits your needs.