IQ Remar's Report

What You Should Know About VantageScore

The big 3 Credit Reporting Agencies (CRA)—Equifax, Experian, and TransUnion—have developed a new credit scoring method called VantageScore. In their March 2006 press release, the CRAs assert that their new model will provide consistency across the three major bureaus. The VantageScore is a competitor to the established FICO score (developed by the Fair Issac Company) and dozens of models based on the FICO score. News media have given the VantageScore introduction wide coverage, but what will it really mean for consumers?

That answer is not yet clear. Although the CRAs are marketing VantageScore to lenders and providing consumers access to their VantageScore, the big question is how many financial service companies—the folks who make the loans or extend credit—will opt to use the new credit score. Will these companies think it's worth reprogramming their systems to incorporate another scoring model?

A greater concern than credit scoring model for many lenders is the fact that there are discrepancies among the three CRAs in what data is recorded on an individual. Having accurate, consistent data among the CRAs may be a bigger issue for financial institutions than having another scoring model. It is unclear that the VantageScore will really address this underlying problem.

How does VantageScore compare with FICO credit scores

Your credit score—and the scoring method—is important because it is a big factor in determining if you will get credit and the interest rate you get on that credit.

Currently each of the CRAs produce a credit score using different methods, but generally based on the FICO model. Current credit scores range from 300 to 900.

VantageScore will use a score range from 501-990 and give each level a letter grade as shown below.

A: 901 - 990
B: 801 - 900
C: 701 - 800
D: 601 - 700
F: 501 - 600

IQ Tip: When purchasing your credit score from the CRAs, make sure you know if the score is your VantageScore or FICO based score.

IQ Tip: It's important to remember that no matter what scoring method is used, the advantage goes to consumers who use credit wisely and always make their payments by the due date every time. Anything less than that raises some level of doubt among lenders that the borrower will fully repay their loans.

For more information on credit scoring and how it's used

The Federal Trade Commission has a good brief overview of Credit Scoring, which explains the FICO-based models in current use.

Our IQ article What Is a “Credit Score”? And How Can It Affect Your Credit? also tells you more about credit scores.

 

Prepared by Remar Sutton and Associates and licensed to Educators Credit Union. Copyright 2007. All rights reserved.