What's your credit score? Agencies to use one system

3 firms say unified approach will ease lender, consumer issues

09:41 PM CST on Tuesday, March 14, 2006

Associated Press

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NEW YORK - The nation's largest consumer credit bureaus have unveiled a new credit scoring system that they hope will give lenders a better measure of borrowers' creditworthiness and make the process easier for everyone to understand.

Consumer advocates worry that it won't necessarily work out that way.

As Jean Ann Fox, director of consumer protection with the nonprofit Consumer Federation of America in Washington, D.C., put it, the new system looks a bit like "a new recipe, but the same old ingredients."

The credit reporting companies -- Equifax Inc. of Atlanta, Experian Information Solutions Inc. of Costa Mesa, Calif., and TransUnion LLC of Chicago -- announced Tuesday that they're introducing "VantageScore" to banks, mortgage lenders and credit card companies. After the lender rollout, the new scores will be available to consumers, probably later this year.

Credit scores traditionally have been three-digit numbers that lenders use to evaluate borrowers. The scores reflect how much debt a consumer is carrying, how good they've been at paying back loans and how many credit applications they have outstanding.

The scores are important because lenders use them to decide if they'll loan money to consumers and at what rate. The higher the score, the more creditworthy the consumer is considered and the lower the interest rate the consumer will be charged.

The agencies in the past each used proprietary formulas to generate their own scores, meaning that a lender dealing with a consumer's application for a credit card or a mortgage might have to reconcile three widely different scores.

With the new system, a single methodology will be used to create the scores for all three credit bureaus, the agencies said. There will be only minor variations in the results, based on differences in the data each bureau has accumulated in consumers files, they said.

"There's clearly been a need out there to have a consistent scoring model that works across all three reporting agencies' data," said Kerry Williams, group president of Experian's credit services division. "And consumers need a consistent score that they can understand and use in their own financial lives."

All well and good, says the CFA's Fox, but inaccurate information in the credit files maintained by the bureaus has been more of a problem for consumers than inaccurate scores.

"It doesn't address the underlying accuracy of the credit reports on which the scores are based," Fox said.

In addition to the credit agency scores, some large lenders generate their own internal scores, often using credit bureau data. And many lenders -- including those in the credit card and auto lending businesses -- use FICO scores, which are named for the Minneapolis-based Fair, Isaac Corp. that developed them.

Fair, Isaac has done considerable outreach to educate consumers about FICO scores, which range from 300 to 850.

The new system being introduced by the credit bureaus will provide scores ranging from 501 to 990, according to Tuesday's announcement.

"There could be confusion among consumers unless they make it clear that there are two systems," said Linda Sherry, a spokeswoman for Consumer Action, which is based in San Francisco. "People have gotten used to thinking a certain number like 700 is a good score. That might be true if it's a FICO, but might not be under the new system."

Thomas G. Grudnowski, the chief executive officer of Fair, Isaac, said it wasn't clear to him why the credit bureaus were looking at a different numbering system.

"Frankly, these scores are encoded in computers all over the place," Grudnowski said. "There has to be a big, burning reason for lenders to want to change."

He added: "The other scores (the credit bureaus) have been trying to sell haven't worked. Now they're trying another idea, and that's what competition is all about."

Dana Wiklund, senior vice president for predictive sciences at Equifax, said that the VantageScore "is a new, competitive product to give lenders greater choice, and hopefully greater accuracy, in credit scoring."

He said it was created because "customers have come to us" looking for a new system and that "the rate of adoption will determine, ultimately, if the score replaces any in-house or generic scores on the market."

David Rubinger, spokesman for Equifax, told a conference call with reporters that the new score was expected to reduce the variance in a consumer's scores by about 30 percent compared with what it was under the old system.

He said the score would reflect a consumer's frequency of borrowing, delinquency in paying bills and other "file content." But Rubinger and other credit bureau spokesmen said it was too soon to provide the specific weights for the components.

VantageScore is being independently marketed by each of the three national credit reporting companies through licensing agreements with VantageScore Solutions LLC, the announcement said. VantageScore Solutions is jointly owned by the three credit bureaus.
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Where does that leave Fair Isaac?

In the past, Equifax is still around be FI is old news.

Looks like Wall Street is wagering that too...

http://biz.yahoo.com/ap/060314/fair_isaac_mover.html?.v=1