The VantageScore System
Last Updated Novemember 15, 2008
There is a new credit scoring system in town, but thus far it does not appear to be giving classic FICO scores any real competition. The three major credit
agencies, Experian, Equifax, and Trans Union announced
on March 14, 2006 that they would be adopting the new
system and rolling it out to banks, mortgage lenders
and credit card companies by the end of the year. The new system, entitled "VantageScore", was jointly developed by the three credit bureaus, and according to Experian, it's the most
sophisticated, highly predictive scoring model currently available in the marketplace. As of early 2008 no major mortgage companies
have announced adoption of the competing VantageScore, but some retailers
have adopted it, according to Donald Girard, an Experian spokesman.
Under the current FICO system, a request for your credit score from any of the big three credit bureaus will most likely result in three (sometimes significantly) different scores.
This is due to the fact that each credit reporting agency utilizes it's own proprietary scoring model, developed internally. Another major reason for the inconsistency between the scores is that not all businesses report credit information to all three
bureaus. When a lender evaluates your creditworthiness for a loan, they typically will look at all three scores, but it is the median (or middle) score that becomes your effective score.
It is for these reasons, according to Kerry Williams, group president of Experian Credit Services, that the credit bureaus developed the new VantageScore system. According to the bureaus, with Vantagescore
each reporting agency will use the exact same method to calculate a consumer's score, providing a single score that they can understand and use in their financial lives.
Under the classic FICO scoring system, scores range from 350 to 850, with the higher numbers indicative of better credit risk. The VantageScore system is similar
in that higher scores still correlate to increased creditworthiness, but the numerical range is slightly different. Additionally, similar to a school report card, a letter grade is designated.
The VantageScore range and letter grading system is as follows:
- 901 to 990 = A
- 801 to 900 = B
- 701 to 800 = C
- 601 to 700 = D
- 501 to 600 = F
So technically, if the Vantagescore is based on all the same information, credit scores from each credit reporting agency will be identical, or so the credit bureaus are telling us.
The VantageScore is purportedly based on six main variables, versus the FICO score's five variables. Here is a brief comparison of the two with weighted percentages equal to 100%:
Classic FICO Score
- Payment History: 35%
- Debt or Amount Owed: 30%
- Length of Credit History: 15%
- Type of Credit Used: 10%
- Amount of New Credit: 10%
VantageScore
- Payment History: 32%
- Utilization of Credit: 23%
- Account Balances: 15%
- Depth of Credit: 13%
- Recent Credit: 10%
- Available Credit: 7%
It's difficult to formulate an "educated" opinion on the new Vantagescore system when there is still so little data available regarding it's use. The following information
is taken primarily from the Vantagescore website itself, thus cannot be considered a "neutral" view. However, it seems the most relevant source for informing us on the nuts and bolts of the new system.
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ANSWERS TO SOME FREQUENTLY ASKED QUESTIONS REGARDING VANTAGESCORE
Q: What is VantageScore?
Launched in March 2006, VantageScore is a highly
predictive and consistent consumer credit scoring
model across all three major credit reporting
companies (CRCs) - Equifax, Experian and TransUnion.
Consumer scores fall within a range of 501 to 990,
with higher scores representing a lower likelihood of
risk.
Q: Who is the Company Behind VantageScore?
VantageScore was developed jointly by the CRCs in
response to market demand using innovative modeling
techniques and based upon their deep industry and data
knowledge. VantageScore is independently marketed and
sold through the CRCs via licensing arrangements.
VantageScore Solutions, LLC, is an independently
managed company, holds all the intellectual property
rights to VantageScore and is responsible for the
continued maintenance and re-validation of the
underlying algorithms of VantageScore.
Q: Why did the three Credit Bureaus collectively develop VantageScore?
The development of VantageScore was prompted by
market demand. In addition to a credit scoring model
that reflected more recent changes in consumer credit
behaviors, including increasing debt loads and the
introduction of non-traditional debt products, lenders
sought a model that delivered consistent, predictive
power across all three Credit Reporting Companies (CRCs).
Prior to the launch of VantageScore, generic
credit scores varied across the three CRCs because
data was interpreted under different scoring
methodologies. While there will still be some score
variation with VantageScore due to differences in the
data provided to the individual CRCs for each consumer
file, the gaps among the results generated via
VantageScore are diminished because the credit scoring
model itself and the underlying credit characteristics
in the algorithm are the same at all three CRCs.
Q: Will there now be just one consistent score
per consumer across the three CRCs?
No. While the three CRCs can now generate scores
using the same underlying credit scoring model,
differences in the actual scores are to be expected
because each CRC maintains its own consumer credit
files, which may vary. Consumers' files at each CRC
can vary because credit grantors can choose which CRC
they provide consumer payment data.
Q: How was VantageScore developed?
VantageScore was developed by a representative
team of statisticians, analysts and credit data
experts from each of the CRCs. The resulting credit
scoring model was built from a robust national sample
of approximately 15 million anonymous consumer credit
profiles that reflected the diversity of the country.
Data, which was pulled equally from the three CRCs,
included public record information, collections
information, tradeline data, and inquiries.
Q: When was VantageScore Developed?
Development work began in July 2005; it was
introduced to the marketplace in March 2006.
Q: What are the Advantages of Vantagescore?
As the algorithms underlying VantageScore were
created from 2003-2005 consumer data, it reflects
recent economic trends and important shifts in
consumer credit behaviors. VantageScore was built
using the latest analytic techniques and uniquely
benefits from the unparalleled, extensive credit data
expertise of the three CRCs.
Q: Does the introduction of VantageScore mean
that the CRCs will no longer continue to independently
develop the proprietary credit scores they had been
marketing in recent years??
Although jointly developed, VantageScore is
marketed and sold independently by the CRCs. Each CRC
will continue to make its own decision regarding
proprietary credit scores.
Q: Who will be the primary market for
VantageScore - consumers or business clients?
VantageScore was created to address needs in the
business marketplace. However, each company will
distribute VantageScore in a way that is consistent
with its own business strategy, which may include both
business clients and consumers.
Q: What does this mean for the continued
existence of the credit scores that the three CRCs
have developed and marketed individually for the past
few years? Will these scores continue to be sold?
VantageScore provides a new and unique option to
the marketplace. There will continue to be multiple
scoring solutions in the market designed to meet
varying business needs. VantageScore will compete on
the merits of its consistent, predictive power.
Q: Will each CRC sell the same score? Will there
be any variations from company to company?
With VantageScore, the same model is used across
all three CRCs. Differences will occur when the
underlying data content is different. Each company
will sell VantageScore independently according to its
unique marketing strategy and positioning in the
marketplace.
How will VantageScore be priced?
VantageScore is marketed and sold independently by
the CRCs through individual licensing arrangements.
Each CRC will set its own prices according to its
individual business goals and marketplace objectives.
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To learn more about VantageScore, here are some additional sources for review:
Here is what the credit reporting agency Equifax has to say about VantageScore.
Here is what the credit reporting agency Experian has to say about VantageScore.
Here is what the credit reporting agency TransUnion has to say about VantageScore.
Here is a link to MyFICO.com where you can learn all about your FICO Score, get loan calculations, and other useful information.
Here is an article from ConsumerAffairs.com giving their take on VantageScore.
Here is an interesting article from The Washington Post on multiple credit scoring issues associated with the current credit crunch.
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