In mid-March, the three major credit-reporting agencies jointly introduced a new credit scoring system called VantageScore. This raised a number of questions for consumers. Here are answers to some of the most common ones:
What’s the difference between VantageScore and FICO?
For years, the credit bureaus -- Equifax, TransUnion and Experian -- have used the information in your credit file to calculate a three-digit FICO score. (The score is named for Fair Isaac Corporation, the company that pioneered credit scoring models and now licenses its software to all three bureaus.) The higher your score, the less risk you represent to a lender, and the more likely you are to be approved for their best rate. FICO scores range from less than 400 to around 850, with any score below 620 considered sub-prime.
The new credit scoring system, called VantageScore, has the same goal, but it uses a different numerical scale. The VantageScore ranges from 501 to 990. The system also assigns a letter grade to consumers within certain ranges:
Is the VantageScore based on the same factors as the FICO score?
Yes. VantageScore will be based upon the same data that is used to calculate your FICO score, says David Rubinger, vice-president of communications for Equifax Inc. The same factors FICO uses -- such as whether you pay your bills on time, how much outstanding debt you have, how long your credit history is and how many and what types of credit accounts you have -- will also affect your VantageScore.
Why did the bureaus create this new system?
When a lender requests your FICO score now, each of the three bureaus sends back a different number, because each uses a slightly different formula to calculate their scores. It’s common practice for lenders to use the middle score and discard the other two. Both borrowers and lenders, however, sometimes question the accuracy and usefulness of the scores when the discrepancies between bureaus are large.
VantageScore is an attempt to create more consistency. Even though they are competitors, the three bureaus decided to cooperate and create a standardized credit-scoring model, independent of Fair Isaac’s. All three bureaus will use this same formula to compute your VantageScore.
So my VantageScore will be exactly the same at all three bureaus?
Not necessarily. If all three bureaus had precisely the same information in their files, then your score would indeed be identical across the board. However, creditors may report to one bureau and not the other two, so there may be slight differences among your three files. According to Equifax, the variance should be about 30 percent smaller than under the current system.
Does this mean my FICO score is obsolete?
Not at all. VantageScore is a new product being offered by the credit bureaus, but financial institutions are not obliged to purchase it. Since lenders have long relied on FICO scores to approve borrowers and set interest rates, they may find it too disruptive or too expensive to adopt a new system.
Can I check my own VantageScore?
Not yet. The score is currently available only to lenders and they are still in the process of conducting tests to gauge its performance. It may be a year or so before it’s available to consumers.
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