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A New Credit Scoring System - VantageScoreBy Chris Robbins Direct Lending Solutions President/CEO
It would be nice if all lenders and credit reporting agencies used the same credit scoring sytem. Unfortunately, they don't, contrary to popular belief. The original FICO score was developed by Fair Isaac and Company (FICO) in the late 1950s as a numerical method of determining credit worthiness. A credit score attempts to condense a borrowers credit history into a single number. FICO scores range between 300 and 850 and are based on your past bill-paying performance. The three major credit bureaus each have their own version of the FICO method: Equifax uses the Beacon system, TransUnion uses the Empirica system, and Experian uses the Experian/Fair Isaac system. Each system is based on the same premise, but they are all slightly different. Even if each credit bureau had the same information about you, word for word, the scores might be slightly different. Furthermore, lenders, who traditionally rely on credit bureaus for information about your credit, may also have their own credit-rating method based on it's own set of customer data; some lenders do not even use credit scores. So, since each credit bureau calculates your credit score differently, there has been an outcry for years from consumers and lenders for some type of uniformity. That is why VantageScore was created. VantageScore is a new consumer credit risk score that was developed through the utilization of information from the three national credit reporting companies. It is a direct result of market demand for a more consistent and objective approach to credit scoring methodology across all three national credit reporting companies. This approach is unprecedented in the marketplace. Some risk models are unable to score a significant percentage of consumers due to insufficient credit information. VantageScore returns more predictive scores on consumers with limited credit histories, thereby reducing the need for creditors to go through a manual review process and impose their own personal methodology to determine credit worthiness. The new VantageScore leverages the collective experience of the industry's
leading experts on credit data, scoring and analytics. Under the new scoring
system, credit score variance between credit reporting companies will be
attributed to data differences within each of the three consumer credit files
and not to the structure of the scoring model or data interpretation.
The new score is the first of its kind to leverage a consistent scoring methodology across all three national credit reporting companies. VantageScore brings clarity to businesses and consumers through an easily interpreted numeric score, and choice to the marketplace with a new, highly predictive scoring option. Extensive testing throughout the VantageScore development process has shown that it outperforms and is more predictive than other commercially available models in the marketplace today in projecting short-term delinquencies. With its introduction, TransUnion has established a dedicated implementation team to work with customers to analyze and test VantageScore with their portfolios and to assist them in activating it with their internal processing systems. “As markets have matured, so have customers’ needs,” said TransUnion's Chet Wiermanski, one of the creators of VantageScore and vice president of Analytics for the company. “VantageScore represents TransUnion's on-going commitment to proactively address the needs of our customers by developing highly predictive risk models.” The score is unprecedented in that it looks at and analyzes data at the same point in time on the same consumer records from all three national credit reporting companies. VantageScore was developed using a national sample of anonymous credit information of approximately 15 million consumers and uses a score range of 990-501 and score groupings that approximate the familiar academic scale:
VantageScore is being independently marketed and sold separately through each of the three national credit reporting companies via licensing agreements with VantageScore Solutions, LLC. VantageScore is commercially available beginning today. This scoring procedure is not being used yet, as it still has to be accepted by lenders. Lenders have been asking for an improved scoring system for quite a while, so VantageScore's acceptance is enevitable as it grows in popularity. Until then, traditional credit scoring such as FICO will be used. As always, it is up to each lender to decide how it will evaluate your credit worthiness. Copyright © 2004 - 2008. DirectLendingSolutions.com |