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VantageScore gains in lawsuit

Thursday, July 30
Posted 2 p.m.

Bankrate reporter Leslie McFadden contributed this entry.

A U.S. district court judge has dismissed many of the complaints from FICO against VantageScore Solutions LLC and two of the three national credit reporting agencies that helped create the rival credit scoring model. VantageScore is a scoring model developed by all three major credit reporting agencies. It uses a single algorithm across the bureaus, which means that if your credit report looked exactly the same at each bureau, your score would be the same.

FICO sued all three agencies as well as VantageScore Solutions LLC after they introduced the tri-bureau scoring model in 2006, alleging violation of antitrust laws, trademark infringement, unfair competition, false advertising and deceptive trade practices. Charges against Equifax were dropped from the suit last year after a settlement.

The 52-page court order explains:

A predominant theme throughout Fair Isaac's antitrust claims is that Defendants' efforts were designed to replace FICO scores with VantageScore credit scores everywhere FICO scores appear and drive Fair Isaac out of the credit scoring industry entirely.

The court order then noted that VantageScore has captured only 5.7 percent of the credit scoring market in its three years on the scene, while FICO holds a 74 percent stake, down only 4 percent since the inception of VantageScore.

The judge threw out many of the claims against the three companies, including the antitrust allegations, but did not dismiss complaints of trademark infringement and unfair competition. The case could go to trial later this year.

In a press release, FICO CEO Mark Greene reacted to the court decision. "This suit is about two things: fairness and consumer protection. At a time when consumers most need clarity regarding their creditworthiness, it's imperative that they understand whether or not the credit scores they purchase are industry-standard FICO scores, or merely look-alike 'educational' scores not actually used by lenders to make lending decisions."

CEO and President Barrett Burns of VantageScore Solutions LLC said he is "pleased" with the dismissal of most of the complaints. "We continue to believe that the trademark infringement is without merit, so if Fair Isaac wants to go to court over that, as apparently they have said, we'll meet them in court," he wrote in an e-mail statement.

Scores from VantageScore are available at all three national credit reporting agencies to lenders but are only sold to consumers through Experian and TransUnion. When you purchase a credit score from Experian or TransUnion via Annualcreditreport.com, the score comes from VantageScore. The TransUnion VantageScore score costs $7.95. Through Experian the price is $5.95.

According to Burns, three of the top 10 mortgage companies use VantageScore, plus eight of the top 10 credit card issuers, among other types of lenders. He expects to see more adoption, contending that some lenders may have been waiting on the outcome of the lawsuit.

VantageScore scores range from about 501 to 990, with a corresponding letter grade. An "A" grade represents a "super prime" score between 901 and 990. Some of the differences with VantageScore versus FICO include the fact that VantageScore does not include accounts on which someone is listed as an authorized user in scoring. VantageScore is also more likely to generate a score for infrequent credit users, those establishing credit and "thin file" applicants, who have few trade lines on their credit report.

The factors that make up a VantageScore score look somewhat different from FICO, even though payment history and utilization comprise the two most important components in both models. For instance, VantageScore combines mix of credit with length of credit history in a single factor, worth about 13 percent of the score.

The average VantageScore score from Experian is 736, while the median FICO score is 723.

Readers, please weigh in. What do you think of the VantageScore? Have you purchased yours? E-mail Plastic_Rap@Bankrate.com.

Read more Plastic Rap blog entries.

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