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Experian Advanced Risk Score 2.0

By on June 22, 2011 in Credit

It’s important for consumers to understand that there are many types of scoring products and methods to calculate an individual’s credit risk. The Classic FICO is the most commonly referred to and is used by the three credit bureaus, each with a unique algorithm. Equifax uses the Beacon Score while TransUnion uses the Empirica Score. Experian, on the other hand, uses FICO Risk Score Classic.

In 2003, FICO released a new type of product called Next Gen credit scores which changed the way an individual’s credit is scored, improving the system dramatically by providing more accurate information. These newer credit scores allowed lenders to lower rates up to 25% while approving 5% more loans. Next Gen 2.0 was released later and Experian implemented the Experian/Fair Isaac Advanced Risk Score 2.0, or the Experian Advanced Risk Score 2.0 as it’s better known.

The Experian Advanced Risk Score 2.0 is developed by Fair Isaac and introduces many new ways to calculate credit scores, benefiting both lenders and consumers. A looser criteria for the minimum score was created to let more items receive scores. This means that individuals with a limited credit history or those with rarely used credit receive more accurate credit scores. A change was also made to the way automobile and mortgage pulls impact your credit score. Instead of the 15 day window that was used with Classic FICO models, the Experian Advanced Risk Score 2.0 uses a 45 day window. This means that any multiple auto and mortgage inquiries will count as a single inquiry on your credit report. Collections accounts and public records accounts under $100 are no longer counted under the system as well, meaning that a consumer’s credit score won’t be affected by these small debts. In addition, changes were made to trade lines. Specifically, a consumer’s access to their credit isn’t affected at a disproportionate rate because they’ve accepted certain finance options like “same as cash”.

The Experian Advanced Risk Score 2.0 gives a real FICO score and has a different range than a typical FICO score. The range for the this scoring model is between 150 and 850, allowing the system to more accurately reflect credit histories. This Experian scoring method is far more advanced than previous models used. It’s important to realize, however, that banks and lending institutions can use any system they wish–including Classic FICO scores–to determine an individual’s credit worthiness.

Many things are taken into account to get your Next Gen credit score, the most important of which is the payment history. Payment history accounts for a full 35% of your score. The amount you owe comes in as second important, claiming 30%, while new credit accounts and the types of credit that you use make up 10% each. The length of your credit history accounts for 15% of your Next Gen credit score.

Experian Advanced Risk Score 2.0 creates a more effective way to analyze and interpret a consumer’s credit history. The scores are updating quarterly and don’t count as hard pulls, a feature that’s very consumer-friendly. This Next Generation credit score is designed to give lenders a better idea of credit risk, allowing them to lower rates for individuals with better credit. Next Gen credit scores have accounted for a estimated 5% increase in the approval rate of loans because they offer a scoring method far superior to the classic FICO system.

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