Credit Bureaus to Alter Scoring
Three agencies will aim for greater consistency
with new computing method over the next two years.
Submitted by Tom Peterson
new scoring system adopted by the three major
credit-rating agencies will look familiar to anyone
who went to school:
one of the most confounding things about credit scores:
getting a "good" score from one credit bureau only to
be dinged when you apply for a car loan or credit card
when another credit agency ranks you lower.
three major credit-rating bureaus announced plans Tuesday
to lessen that frustration with a new credit scoring
system that will standardize the methodology for computing
scores. The new VantageScore is expected to be available
to consumers in 18 to 24 months once financial institutions
new system will not eliminate the variations in scores
among the three agencies because they will still use
different databases to determine the number. But executives
said that by standardizing the formula for computing
the new VantageScore, it would eliminate one of the
main factors that have contributed to the discrepancies.
"The beauty of this is that for the first time the only
difference in scores is the data contained on the credit
report," said Kerry Williams, president of Experian's
Credit Services division. "And consumers will be able
to review (their reports) to see what data is included."
example, if one agency includes a 30-day late payment
on your mortgage and another doesn't, you will know
why the scores are different.
current scores, which generally are ranked on a scale
of 300-850, the new scoring system will go from 501
to 990, mimicking the grading similar to that used in
school. The 900 range equates to an A, under 601 an
at least one consumer advocate was skeptical about the
going to confuse (consumers)," said Stephen Brobeck,
executive director of the Consumer Federation of America,
a nonprofit consumer advocacy group. He said the credit
agencies would have done better to adopt a scale similar
to the ones now in use, which are variations on Fair
Isaac's FICO score.
biggest area of consumer lending is mortgages and the
FICO score is still the gold standard (for credit rating),"
he said. "What would have helped consumers a great deal
was if the new score reflected the same (formula) and
database and utilized roughly the same scale similar
to the FICO score scale."
F. Catone, senior vice president for products and market
development at First American Credco in Santa Ana, which
is the country's largest provider of FICO scores to
the mortgage industry, said credit card and consumer
lenders may be quick to adopt the new scores, but the
mortgage industry probably would hold back.
are calibrated to the FICO scoring system, which will
make it very difficult to switch," he said.
officials could not be reached for comment.
credit agency officials, who said the new system was
devised in response to requests from financial institutions,
believe the new score will still provide a valuable
are offering a different choice that is more predictive
(of credit risk)," said Equifax spokesman David Rubinger,
whose credit agency is the only one that uses a FICO
Peterson Loan Officer and Realtor
Metro Lending Services