What is Experian Advanced Risk Score 2.0

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What is Experian Advanced Risk Score 2.0
2 years ago
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The world of credit reporting is a murky and confusing place. While most consumers are familiar with FICO scoring as a traditional credit rating method, the Fair Isaac Company has developed a new method called 'NextGen FICO® 2.0' that they feel has addressed important credit trends by improving score accuracy and maintaining predictive power. These scores are available through the three common credit unions under names such as 'Experian Advanced Risk Score 2.0,' 'TransUnion PRECISION score 2.0,' and 'Equifax Pinnacle score 2.0.'

Theoretically, these changes will benefit consumers as well as lenders by allowing an ease of scoring, updated treatment of inquiries and more 'consumer-friendly' content.

A traditional FICO credit score ranges from 300 to 850. It is calculated through a complex algorithm that relies on payment history (35%), length of credit history (15%), new credit inquiries (10%), types of credit (10%) and debt (30%).

The new NextGen 2.0 model offers a similar look and feel to traditional FICO scoring. The range is between 150 and 950, and the standards of measurement are the same. However, with relaxed standards, Fair Isaac estimates that the new model will provide a 5 ??15% score lift for nonprime consumers.

Reduces Inquiry Impact
NextGen 2.0 scores offer a more forgiving algorithm that previous scoring model. Whereas new credit inquiries could impact your FICO score by as much as 10%, the NextGen 2.0 system acknowledges that savvy consumers now shop around for the best rates when considering obtaining credit.

In 1990, the FICO model adopted a standard known as 'de-duplication' of auto loan or mortgage inquiries. This regulation altered the model so that any inquiries occurring within a 14 day period counted only as one inquiry on the credit score. However, as credit-conscious consumers diligently research their options and shop for the best rates, inquiries often fall outside the 14 day limitation. As a result, NextGen 2.0 has increased the de-duplication window to 45 days.

Lowers Scoring Criteria
Frequently, the young population suffers with the FICO score because they aren't necessarily 'scoreable.' NextGen 2.0 has taken this into consideration and lowered the minimum scoring criteria to be able to score a larger population. This will allow more people ??especially young individuals ??to be able to use their score in obtaining credit.

Prior to the 2.0 reconstruction, a credit line had to be open for at least six months to receive a credit score. This is corrected in NextGen 2.0, as only one line needs to be open three months. Also, only one undisputed trade line must be updated within the last twelve months, rather than within the previous six month guideline established by prior scoring systems.
These changes, while minor, will result in an additional 2% of the population receiving credit scores.

Eliminates Low Balance Collections
Another credit scoring plague comes in the form of low-balance collections. These could reasonably include library fines and video rental fees. While exceedingly minor, these small delinquencies have negatively impacted traditional FICO and NextGen 1.0 scores. NextGen 2.0 has deemed these unfair and now overlooks any collections or public records under $100.
Also, consumer finance trade lines are no longer included in the NextGen 2.0 model. This means that offer touting ??0 days same as cash??will no longer negatively affect credit scores.

The improvements in NextGen scoring are aimed at assisting business and consumers more confidently provide and access credit. Overall, the improvements will make credit more easily obtainable for thousands of individuals nationwide.

By TheLinNicole
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