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Fair Isaac's Reply to the VantageScore, From a FI Employee


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Before I share this info... Yes I am a Fair Isaac employee. And yes I obtained prior approval from our PR dept before posting this. This document was posted on our Intranet site last week.


March 23, 2006



On March 14, 2006, the three national credit reporting agencies, Equifax, Experian and TransUnion, jointly announced the creation and availability of VantageScore, a new credit risk score. According to their announcement, the new score was developed through a collaborative effort by all three credit reporting agencies. The score is being independently marketed and sold through each of the three credit reporting agencies via licensing agreements with VantageScore Solutions, LLC, a company that the agencies have established. The following FAQ provides answers for use by Fair Isaac employees to the most common questions directed to Fair Isaac in the days immediately following their announcement.

Q: Did Fair Isaac help develop the new score?

No. Fair Isaac was not involved in the development of the new score, and any questions regarding VantageScore from sources outside of Fair Isaac should be directed to Equifax, Experian and TransUnion.

Q: Who has more experience in credit bureau-based risk scoring, Fair Isaac or the credit reporting agencies?

Fair Isaac has the most experience. Behind our FICO® scores’ unsurpassed performance is 50 years of analytic expertise and 25 years of analyzing credit reporting agency data. We developed the first credit risk score in 1958, the first credit reporting agency score models in 1981, and launched the first general-purpose FICO score in 1989. Our analytic scientists have the most experience studying the nuances of data, allowing us to make the scores more powerful with each redevelopment.

Q: Is there a market for the new score?

At this point, we don’t know enough about the underlying science of the new score to comment in detail.

However, the ongoing – and growing – success of the FICO score demonstrates that Fair Isaac is already meeting the market’s demand for a consistent measure of credit risk across the three credit reporting agencies. FICO scores have been available since 1989 and are used by most lenders when making billions of credit decisions annually. FICO scores are routinely tested and have become relied upon by lenders, rating agencies, the Wall Street community and a growing base of consumer advocates and personal finance experts. Fair Isaac credit bureau risk scores provide a common language for risk in many industries, including consumer credit, commercial credit, mortgage and telecommunications. They are endorsed or used by such industry-leading organizations as Fannie Mae and Freddie Mac for secondary mortgage lending, and Standard & Poor’s and Fitch IBCA in the rating environment.

Q: Will the introduction of the new score hurt Fair Isaac?

We are confident that, provided a choice, lenders will continue to rely upon FICO scores to make the most objective, fair and profitable risk management decisions. Competition has been a fact of life in our industry, and the individual credit reporting agencies have attempted in the past to compete with Fair Isaac by offering scoring alternatives. Yet, FICO scores have continued to be used by the vast majority of banks and lenders in the United States to make the smartest possible lending decisions and grow more profitable. This is the first time that the credit reporting agencies have coordinated their efforts to develop a new risk score and we will monitor lender reactions and take all steps necessary to ensure Fair Isaac remains lenders’ scoring system of choice.

Q: Will the new score replace FICO scores in lenders’ risk evaluation process?

Based on what we know now, as long as the market is free from competitive restraint, competition from FICO scores (both Classic and NextGen) will be significant because FICO scores have widespread acceptance by consumer lending and securitization users, as well as acceptance by key regulatory bodies as reliable. Their confidence in FICO scores is the result of the FICO score’s proven predictability and Fair Isaac’s continuous work to update and fine-tune our scoring models to ensure the most precise risk predictions and score explanations possible. Lenders and regulators also value our neutrality in the credit data industry and our ability to objectively analyze and utilize credit bureau data – which differs from bureau to bureau – to generate highly predictive, reliable risk scores.

Q: Does the introduction of VantageScore signal a breakdown in Fair Isaac’s relationship with its credit reporting agency partners?

No. Even as our partners introduce VantageScore, Fair Isaac is working with each of the three credit reporting agencies to continue delivery of billions of FICO® scores annually to lenders and other businesses. And we are planning to introduce additional products that Fair Isaac is developing in collaboration with the credit reporting agencies. Of course, we cannot speak to the intentions of the credit bureaus.

Q: How does the new score’s scale differ from the FICO scoring scale?

According to the credit reporting agencies, their VantageScore uses a numeric scale of 501-990, and also a parallel alphabetic scale that classifies consumers into fixed A, B, C, D, F scoring 2

grades. These alpha grades strongly suggest that all lenders agree on levels of risk in neat, permanent scoring bands, which is contrary to Fair Isaac’s long experience with lenders.

Again, we cannot comment on a system we have not yet seen. However, Fair Isaac can say that the FICO scale has served lenders and consumers well for decades, and is increasingly being understood and accepted by consumers as the standard score range. The classic FICO score uses a numeric scale of 300-850 that is well understood and accepted within the financial services industry and regulators. Most lenders’ strategies and securitization decisions within this industry are geared toward the use of the FICO score ranges and consumers. A new, different score range could create confusion for consumers and lenders alike.

Q: What does this different approach mean for consumers?

At this stage, we don’t know enough about the new scoring system to comment in detail. However, a number of consumer groups, including Consumer Federation of America, have expressed the concern that the introduction of VantageScore adds confusion to a marketplace already filled with consumer misperceptions about credit scoring.

Today, consumers can view their FICO credit scores and be confident that the scores are an indication of how most lenders view their credit risk. We will continue our efforts to help consumers understand that FICO scores are the same scores most lenders use now – and will continue to use – to make their lending decisions. myFICO.com is the one place where consumers can access their FICO scores across multiple credit reporting agencies and receive education from Fair Isaac on managing their credit scores.

Q: The three companies say this new score was developed in response to client demand. Have lenders been asking for a new scoring system?

No. Fair Isaac stays in close contact with all the major U.S. lenders, and none of them have reported to us a desire for a new scoring system. Originally introduced in 1989 and available from all three credit reporting agencies since 1991, our FICO® scores have provided the same consistent and highly effective predictive power regardless of the credit reporting agency providing the data. We have regularly updated and improved our FICO scoring models in response to open feedback from major lenders.

Q: The bureaus claim that the new score uses the same scoring model across all three credit reporting agencies. How is the FICO score approach different?

Each of the credit reporting agencies deploys the Fair Isaac scoring model design for Classic FICO scores and NextGen FICO scores. We believe our design utilizes the most predictive elements at each of the agencies to ensure highly predictive performance at each of the agencies – and to ensure that lenders can trust that a 680 FICO score generated on one bureau’s data 3 indicates the same relative level of risk as a 680 FICO score on another bureau’s data. Fair Isaac believes that every FICO score should be as predictive as possible based on the available data.

Q: How will the introduction of the new score impact myFICO.com?

We have confidence that myFICO.com will continue its impressive growth as consumers understand that FICO scores continue to be the scores that most lenders use to make credit decisions. In fact, in the days after the bureaus introduced their new score, myFICO.com marked its top two revenue days in the history of the service.

Fair Isaac Statement Concerning Forward-Looking Information

Except for historical information contained herein, the statements contained in this document that relate to Fair Isaac, including statements regarding its FICO score offering and the benefits to be derived from the offering, are forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially, including issues involving the marketing and distribution arrangements for Fair Isaac’s products, any unforeseen technical difficulties related to the implementation, use and functionality of Fair Isaac’s product offerings, the risks that customers will not perceive material benefits from the offerings, failure of the products to deliver the expected results, the possibility of errors or defects in the offerings, regulatory changes applicable to the use of consumer credit and other data, and other risks described from time to time in Fair Isaac’s SEC reports, including its Annual Report on Form 10-K for the year ended September 30, 2005, and quarterly report on Form 10-Q for the period ended December 31, 2005. Forward-looking statements should be considered with caution. If any of these risks or uncertainties materializes or any of these assumptions proves incorrect, Fair Isaac’s results could differ materially from Fair Isaac’s expectations in these statements. Fair Isaac disclaims any intent or obligation to update these forward-looking statements.

Fair Isaac and FICO are registered trademarks of Fair Isaac Corporation, in the United States and/or in other countries. Other product and company names herein may be the trademarks of their respective owners.

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Does anyone else think that Fair Isaac is a bit nervous about the new scoring model? Why else would they put this out?

I think that they feel they have lost some power and they are trying to regain it by coming up with this CRAZY idea. Everyone seems to be making money off us. They write us up good or badly in our file and WE have to pay to look at it. To me it seems that we should be getting a royalty or something.

How much is this new scoring thing going to cost us??? I'm already paying for Equifax score power and the look at an old 3/in 1 the sales person made it seem like I would be looking at an UPDATE report each month turns out its the OLD one and they send me INSERTS or updates of which I cannot tell what it really truly means. It's a bunch of junk to take my money. But I must admit I do like the alerts. that's really good.

Its a good service but you know it seems to be a money pit. Why should I pay to look at my score when people are going in my file and then act like they don't want to tell me why or who they represent.


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"Who has more experience in credit bureau-based risk scoring, Fair Isaac or the credit reporting agencies?

Fair Isaac has the most experience. Behind our FICO® scores’ unsurpassed performance is 50 years of analytic expertise and 25 years of analyzing credit reporting agency data. We developed the first credit risk score in 1958, the first credit reporting agency score models in 1981, and launched the first general-purpose FICO score in 1989. Our analytic scientists have the most experience studying the nuances of data, allowing us to make the scores more powerful with each redevelopment. "

A hooker has more sexual experience, but that in NO way implies that she is better at it!!!

FACT is that my EX-H has only collection accts on his bureau. He has NEVER repaid a credit obligation. He charges and then defaults. Period. Years later even after all the COs fall of and their matching CA accts as well, he is still left with 15 CA accounts and NO positive tradelines....

His score?

FICO gives him a 598!!!! Although that score is subprime, it still leaves lenders with the impression that he might be worth the risk at a higher interest rate. DUH! Can we not see that ALL he has is unpaid collections?!?!?! How can he possibly rate a 598?!?!?!?!?!?!

I have a paid mortgage that has 2 - 30 and 2 - 60. (one 60 is wrong) I have 6 100% positive TL, CCs and car loans. I have 1 closed/paid CC with 1 - 30. I have 3 collections...2 AFNI for Cingular (which they cannot prove are mine!) and 1 medical collection that insurance finally paid the OC on 2 days ago. My utilization is 13%. I make $73K.

My EQ? 572! :shock:

Tell me FI employee, how in hades does this make sense? How can FICO "accurately" predict that HE is a better credit risk than I am? HUH?!?!?! :evil:

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I don't understand what the big deal is. I'm not taking sides. Choosing between Fair Isaac and the Big 3 is like choosing between firing squad and electric chair. They both pretty much suck at improving your quality of life.

Personally I don't think Fair Isaac is in danger of losing its position and I doubt they're too afraid of it either. They're just answering questions that they're either tired of answering or they anticipate being asked.

Vantage will probably turn out to be New Coke unless they make it financially worth everyone's while to switch.

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If you re-read the article, it's a promotional advertisement for Fair Isaac...

Again, we cannot comment on a system we have not yet seen. However, Fair Isaac can say that the FICO scale has served lenders and consumers well for decades, and is increasingly being understood and accepted by consumers as the standard score range.

There is no 'inside' information here. We can find the same stuff online.

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Of course they are nervous. This represents the single greatest threat to FICO's livelihood ever conceived. No more monopoly for them.

Bull-nuts. The new model will flop so badly it is not even possible to determine how much money the bureaus will loose over this. The bureaus have tried four times in the past to usurp the FICO model for themselves and failed miserably. There is only one way the bureaus will win this, by getting Congress to outlaw credit report resellers who act as middle-men in credit report sales...Buying fromt he big-3 and then repackaging it for resale (FyFico, 3B reports, etc.)

Why? Well firstly you have to have worked in the financial industry to understand two simple and irrevokable principals: Financial institutions HATE change and they HATE risk.

Most banks still have systems running on COBOL. Banks don't pay money to change systems that work well enough for them. Unless the bureaus are literally giving the new score models, training, and secure access systems away, they don't stand a snoflake's chance in Hades of pawning this off on the major institutions.

Sure, some small fry operations may buy into it like the corner used car lot, but not the major banks. Just forget it...they aren't going to change.

As to risk, think about what this new model represents...years of testing by financial institutions checking to see if the new score system can actually predict default more accurately than FICO scores. A bank would have to take the risk of approving loans under the new model and then waiting to see if people fail to pay timely or at all. Do you see any bank doing that? I thought not.

Author's note: My mother worked as a manager in mortgage loan processing for 25 years, and I have spent over a decade working in the financial industry myself. I know how banks work and think from dealing directly with the decision makers for years.

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Another point...

It was implied that the banks don't want to go from a proven predictor to and unknown one.....

Proven? In what way? Haven't we been hearing about record numbers of BKs year after year? SOOOOOOO, what has FICO proven?

Nothing! 8-)

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I agree with Methuss on this one, I think it will flop. The lines are too broad. It may be something that the uneducated consumer may want though. They can compute a D grade or an F grade, but may have trouble understanding why a 538 gets you nowhere but a 638 can get you more places.

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Tempest in a teapot, this Vantage thing. Just another worthless FAKO that no one will use and CRAs will push on unsuspecting consumers (the ones who don't know the difference) to make an extra buck. A FAKO by any other name is still a FAKO. Unless it's supplied free to lenders and the CRAs pay to get everyone's systems realigned, it's not going to be used.

All it comes down to is that our FAKOs will now be computed the same way at each CRA, but if 1) all the info being used is still different at each CRA and 2) lenders don't use the new score, I can't see what value it has to anyone. No more value than current FAKOs, which exist solely to bring in incremental revenue for the CRAs.

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Than vantage score system was collaberated by the big 3 as a way to maximize profits. They hate paying the middleman (Fair Issac and Co) any money for these scores. They hope this will force Fair Issac and Co to lower prices or buckle under the pressure. Then the big 3 can enjoy billions more a year in profit.

Aren't they greedy enough? They already enjoy billions of dollars in revenue a year, they hate to actually work for the consumer. The big 3 are in the business of helping lenders make money. By releasing the vantage scoring model, they hope all lenders will eat the new model up. The model might make many of us higher credit risks than with FICO. This means more money for the lenders. Then the credit bureaus can become bigger monopolies. The likes of which make Microsoft and Walmart, in their respective brackets, look small.

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