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June 22, 2017
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Credit Bureaus Roll Out VantageScore Credit Scoring System

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The nation's big credit reporting agencies announced recently that they were launching a standardized credit score — with grades from A to F — to make it easier for both lenders and consumers to understand the often-misunderstood ratings.

The new VantageScore from Equifax, Experian and TransUnion is intended as an alternative — and competitor — to the three-digit FICO score calculated by Fair Isaac Corp.

On March 14 the three bureaus announced that they have collaborated on a new credit scoring system "to benefit consumers and credit grantors." The new system named VantageScore is, according to Equifax, "a direct result of market demand for a more consistent and objective approach to credit scoring methodology across all three national credit reporting companies."

The new system will probably still result in variations from credit bureau to credit bureau, but such variance "will be attributed to data differences within each of the consumer credit files and not to the structure of the scoring model or data interpretation." David Rubinger, speaking for Equifax, said that the new score was expected to reduce the variance by about 30 percent from what it was under the previous model.

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The three bureaus have formed a new entity, VantageScore Solutions, LLC, but will each continue to market and sell scores separately through a licensing agreement with VantageScore.

VantageScore will use a larger range of scores than FICO which calculates its score in a range from approximately 300 to 850 although we suppose it is possible to have such a bad credit history that the 300 floor could cease to exist. These scores were based largely (a total of 65 percent) on payment history and total indebtedness with lesser weight given to length of credit history, amount of recent credit, and the types of debt.

In an example from FICO's website, a top score could save a borrower over 15 basis points on a typical loan over a rate which would be available so a borrower with a score in the low 600s. Presumably any borrower with even a lower score would have to deal with lenders outside of, shall we say, the normal sphere of the banking industry.

The new VantageScore will range from 500 to 990. VantageScore will also group scores into alphabetic categories covering a 100 point range that will return lenders to a more refined version of the old A, B, C credit rankings. Thus, from 501 to 600 points the borrower will be branded as having "F" credit while at 901 plus the grade will be an A. There is at this point no indication of what the national distribution will be - under FICO the median score is 723 - nor where borrowers' potential interest rates will fall along the spectrum. The bureaus declined to reveal how various inputs such as delinquency or amount of debt would be weighted on the scale.

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