Standardized Credit Score Is Unveiled
(March 15, 2006) -- In an effort to make it easier for lenders and borrowers to understand consumer credit scores, the three biggest U.S. credit-reporting firms — Equifax Inc., Experian, and TransUnion — have banded together to standardize the method of calculation.
The three firms have long used their own formulas to calculate credit scores, with varying grades sometimes resulting.
The joint system, VantageScore, bring consistency to the process and will make it easier for consumer to understand their score. VantageScore will offer ratings ranging from 501 to 990, with those over 900 earning an "A" rating.
Though the credit-reporting firms will use the same exact formula to calculate the scores, they will continue to collect credit data individually.
VantageScore reportedly will make it easier for consumers with limited credit histories to obtain financing. Just like the traditional FICO credit-scoring system by Fair Isaac Corp., borrowers will score higher by making timely bill payments, keeping balances low, and showing a history of paying different types of debt.
Source: Los Angeles Times, Kathy M. Kristof (03/15/06)
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“Higher scores will still indicate greater levels of credit-worthiness, possibly leading to lower interest rates and better borrowing terms.”
ReplyDeleteOh bull. This means that the secondary market is demanding higher risk premiums and it is necessary to obscure the radical upside lending changes by using a new number.
I wrote an article about this that should see print soon.
ReplyDeleteIt seems to be a broadside by the three bureaus against FICO, as Fair Isaac holds all the cards when it comes to credit scoring. Every major industry uses some variant of the FICO model for their lending purposes, which means the bureaus have to pay Fair Isaac a tithe. This is cutting the middleman out.
Looking forward to the fireworks. ;)
Martin
Housing.com