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Debt Management 2006

Reports and scores

  Understanding credit reports -- their truths and myths -- is crucial to your daily life.
New credit score now online

A new credit scoring system that rivals the traditional FICO score is now available to consumers.

For $5.95, Internet users now are able to check their VantageScores online through Experian, one of three U.S. credit-reporting bureaus that jointly developed the system. The site also includes a simulation showing how potential actions, such as closing a credit-card account or making a late payment, could affect a person's score.

Unlike FICO, which is solely a numerical score, a VantageScore consists of both a number and the letter grade A, B, C, D or F. While the two scoring systems may look different, the behaviors leading to high or low scores are similar.

"The same traditional truths hold," said Stan Oliai, vice president of consulting and analytics for Experian. "It's good to have credit, but not too much. It's good to use credit, but not too much."

VantageScore was introduced in March by credit-reporting agencies Experian, Equifax and TransUnion, which touted it as a simpler scoring method because it uses a single formula to evaluate consumers' debt risk profile. Under FICO, each credit bureau uses a different method for calculating credit risk.

Neither the credit bureaus nor Fair Isaac Corp., which markets FICO, make public the exact formulas they use, although they do disclose the main components. People who score high on FICO, credit bureaus representatives say, should also fare well using VantageScore.

Oliai also claims that VantageScore does a superior job of evaluating the credit of so-called "thin files," or consumers with short credit histories. The system segments people in a particular category, such as individuals with a short credit history or a bankruptcy filing, into high- and low-risk groupings. Such information is particularly sought after for subprime lenders, who lend to people with tarnished credit records at above-market interest rates.

Consumer confusion ahead
Consumer advocates say credit seekers could be at some disadvantage if VantageScore gains acceptance. The advent of competing credit scoring systems, they say, could make the already confusing task of understanding one's credit score even more bewildering.

"Until now, if you were given a 720, you knew that was a good score," said Gail Hillebrand, an attorney at Consumers Union. "Now, in evaluating your score, you need to know what the grading range is, and that's a new question consumers didn't have to ask before."

Under VantageScore, credit scores range from a low of 501 to a high of 990. Each 100-point interval corresponds to a letter grade, in ascending order. A score of 501 to 600, for example, would translate into a grade of "F", while someone with a score greater than 900 would receive an "A." More than two-thirds of all consumers qualify for a grade of "C" or higher. FICO scores, by contrast, range from 300 to 850, with 85 percent of Americans coming in at higher than 600.

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