Alternative Credit Scores

Credit scores are one of two components of the credit application system, the other being credit history reports; a score aims to produce a snapshot of the overall creditworthiness of the individual. While a system known as FICO dominates, other systems have emerged, either to produce more accurate guidance or to better reflect the standing of people who do not have a detailed credit history.

Traditional

The main form of credit score in the United States is FICO, named after the Fair Isaac Corporation that developed it. The score is used by the three major credit record agencies (Equifax, Experian and TransUnion).

Although the precise formula for the score is confidential, it is known that the key components are: payment history (which makes up 35 percent of the score), the percentage of credit use compared to the person's credit limit (30 percent), length of credit history (15 percent), variety of credit granted (10 percent) and recent credit applications (10 percent).

VantageScore

This is a rival score developed by the three major agencies in an attempt to provide competition with the FICO system. It uses six components: payment history (32 percent), use-to-limit ratio (23 percent), total debt (15 percent), length of credit history (13 percent), recent credit applications (10 percent) and total credit limit (7 percent). The main reasoning behind the different breakdown is that VantageScore is designed to distinguish more precisely among individuals who are less creditworthy.

PRBC

Pay Rent Build Credit offers credit scoring for people with little or no credit history. It allows members of the public to report details that are not listed on traditional credit reports, such as rent agreements and utility bills. If the person then pays these bills on time, her score with PRBC (known as a FICO Expansion score) will improve.

Concerns

The National Consumer Law Center has warned that some lower-profile alternative credit score systems may be counterproductive. It says that scores based on high-cost credit may simply serve to attract lenders that want to target vulnerable customers.