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What You Must Know About the New VantageScore

In March 2006, the “Big Three” credit reporting companies caused quite a stir when they announced that they had jointly developed a new credit score, called VantageScore. According to Equifax, Experian and TransUnion, this new score would be more “accurate” than existing credit scores, and would also provide far less variance in credit scores among the credit bureaus. For instance, one big complaint from consumers over the years is that they might get one credit score from Equifax – say it’s 680, then another score of 710 from Experian, and a 740 score from TransUnion. With the VantageScore, consumers would supposedly benefit by getting scores that are much more similar because the three credit bureaus would all use the exact same methodology to calculate credit scores. Additionally, the “Big Three” came up with a new numerical and grading system to classify a person’s credit, with credit scores ranging from 501 to 990 points. The breakdown for VantageScores looks like this:

Vantage Score	Grade	Risk Category
901 to  990	A	Super Prime
801 to 900	B	Prime Plus
701 to 800	C	Prime
601 to 700	D	Non-Prime
501 to 600	F	High Risk

Collaborating in this fashion to come up with the VantageScore raised many eyebrows. Some critics and consumer groups openly questioned whether these credit agencies were guilty of antitrust violations. Even though the credit bureaus each sold and marketed VantageScores on their own, consumer advocates didn’t like the fact that these business competitors had secretly teamed up to come up with a product together.

The U.S. Justice Department launched an informal inquiry into the matter; that inquiry into VantageScore was closed in February 2007, with no action being taken against the credit bureaus. But as of this writing, other legal wrangling is ongoing. Fair Isaac, the developer of the rival FICO credit score, filed a federal anti-trust suit against the three credit bureaus and VantageScore Solutions LLC in October 2006, alleging unfair and anti-competitive practices. In 2008, Fair Isaac dismissed Equifax as a defendant in the lawsuit, but the case is still pending.

As a consumer, the main thing you need to consider is whether or not you should be concerned with this new VantageScore. The answer, in a nutshell, is a resounding NO.

John Ulzheimer, a 15-year veteran of the credit industry and recognized credit expert, puts it bluntly: “It is a waste of money for consumers to buy their VantageScores. Just like it’s a waste of money for consumers to buy ANY score other than their FICO scores,” says Ulzheimer, who is President of Credit.com Educational Services.

But if you listen to the credit bureaus, they suggest something entirely different. The following information was taken directly from the Equifax’s website: “VantageScore’s across-the-board consistency reduces the need for creditors to manually review applications or impose their own personal methods when determining your credit worthiness. As VantageScore becomes the industry standard, all players in the credit lending market — from consumers to investors — will benefit from increased efficiency and effectiveness.”

Well, if VantageScore is going to become the “industry standard,” they’ve got a very, very long way to go. Nearly three years after the launch of the VantageScore and this new product has barely made a dent in the popularity of FICO scores.

Pat Earnhardt, a senior loan officer and mortgage consultant for 1st Medallion Mortgage in Raleigh, North Carolina, says: “I don’t know what time line for acceptance Experian, Trans Union and Equifax had in mind when they introduced VantageScore, but when it comes to mortgages I think VantageScore has not had the impact that the three credit reporting agencies had hoped.”

“Any effect consumers have seen in my industry has been minor, if any,” she adds.  According to Earnhardt, Ulzheimer and other experts, here’s why VantageScores face an uphill battle in the world of credit scoring.

FICO scores have been around for decades. Thousands of creditors and lenders have poured tons of money into building their own software loan approval programs and guidelines based around the FICO credit scoring model. So for these lenders to, all of a sudden, throw out a system they’ve been using for years is going to be an incredibly hard sell on the part of the credit bureaus. It’s not enough for the VantageScore product to match, or even exceed the FICO credit score, in terms of predictive accuracy. Lending experts say the “Big Three” would have to demonstrate clearly how banks would get a great return on their investment, avoid confusing their own employees, and dramatically improve their loan portfolios with customers by going with the new VantageScore. Otherwise, it’s far too disruptive and potentially costly for banks to just throw out a system they’ve relied upon for decades. Some bankers are of the opinion: “If it ain’t broke, why fix it?”

According to Ulzheimer, who formerly worked for both Equifax and Fair Isaac, what makes a score “good” is its ability to predict future “bad” payers. As a result, “there hasn’t been any significant movement in the lending industry to switch from FICO to VantageScore,” he says.

“I’ve spoken with sales reps from all three of the credit bureaus and they are having a hard time selling it (VantageScore) because after you strip away all of the marketing spin it’s just another model,” Ulzheimer contends. “I’ve also spoken with key people at major lenders and they’ve all basically said the same thing: ‘We can’t see why this is better than the credit scoring tools we use now.’”

Moreover, while the VantageScore is supposed to be easier to understand, since it’s based on letter grades that everyone can comprehend, Earnhardt points out that the underlying criteria used to produce a FICO score and a VantageScore aren’t really that different. In fact, on both their own websites and their joint website, www.vantagescore.com, the credit bureaus state clearly that they use the same criteria that the folks at Fair Isaac use to computer your FICO score – factors like your payment history, the amount of credit you’ve utilized, the length of time you’ve had credit, and so forth.

Given this reality, I also asked Earnhardt if she would recommend that people get a FICO score, a VantageScore, or both. Her reply was unequivocal: “Right now, as a lender and as a consumer, I would ask for a FICO based report,” she said.

“I don’t pull a credit report asking for a VantageScore, and I don’t know a mortgage loan officer that does. I only look at FICO scores,” Earnhardt added. “I am a mortgage banker and a mortgage broker with access to major lenders across the country …. Every funding lender we use still uses FICO in their approval guidelines.”

Unless the situation changes, and lenders start seriously using VantageScores, here’s my suggestion: don’t waste your time and money on these credit scores. Besides, the new VantageScore does absolutely nothing to address the biggest problem with credit files from these credit reporting agencies – namely, that they can each contain different underlying data about you. That’s what causes most discrepancies in your credit scores. Think about it. If TransUnion has you paying a bill 30 days late, but that same account is shown as paid on time with Equifax and Experian, then obviously your TransUnion score will be lower than those you receive from Equifax and Experian.

Next – Day 4:  Order Your FICO® Score (Part 5)

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