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Before I answer the question posed in the article title it will be helpful to have some background on credit reports, FICO credit scores and VantageScore credit scores. Credit reports originate from data compiled from the credit bureaus; Experian, Equifax and TransUnion. FICO and VantageScore credit scores are developed from this data and then used to score the data. But who does the actual scoring?
Credit reports
Credit reports are compiled from data collected from lenders, collection agencies and public records. Lenders that contribute data include credit card issuers, finance companies, mortgage loans, and vehicle loans. Public records are usually tax liens, bankruptcy filings and civil judgments. There are three companies that compile this information, which are referred to as consumer credit reporting agencies. These companies sell this information to whomever has a legal right to see it.
FICO scores
FICO used their knowledge of modeling and statistics and applied it to the credit industry, using credit report data to build their scores. Since the score is derived from the credit report, the credit report is required to calculate the score. FICO also developed the software that scores the credit reports, but this software is housed at the credit bureaus and run against the credit reports.
Each credit bureau enters into separate proprietary agreement with FICO regarding the score and usage of the development data. Every time a FICO score is calculated by a bureau they must pay FICO a royalty for the use of the model. Because of the royalty issue, these guys were created as an alternative to FICO scores…
VantageScore Solution’s credit scores
VantageScore Solutions is the newer kid on the credit scoring block and my estimates have them at having 8-10% of the credit score market share. Much like FICO, the VantageScore scoring model is installed on the mainframes of the big three credit bureaus so credit data can be filtered through their model thus yielding a score.
FICO scores sold to consumers
You may wonder how FICO gets the scores they sell to consumers on myfico.com. When FICO receives a request from a consumer for their credit file and score, FICO electronically sends to Equifax or TransUnion (Experian doesn’t sell the FICO version to consumers) the name, address and Social security Number of the consumer. The bureaus use this information to locate the credit report, score it through FICO’s software and send the information back to FICO. FICO delivers the credit report and score to the consumer, along with information on how to interpret the score.
The answer to the question: Neither FICO nor VantageScore calculates their own scores. The score calculation is done by the credit bureaus. Only the credit bureaus have the two things needed in order to calculate a score: the scoring model and the credit report. FICO only has the model. VantageScore only has the model. You have to marry the two things together and only the bureaus have the two things! Great trivia question!!
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Credit Reporting Expert, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, founder of www.creditexpertwitness.com and a Contributor for the National Foundation for Credit Counseling. He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. You can follow John on Twitter here.
