| What's
in the formula?
In most respects, VantageScores are calculated along
the same lines as FICO scores. The creditworthiness formula takes into account
consumers' bill-payment histories and how much debt they are carrying. Under
VantageScore, the factors contributing to a high or low score include:
 |
| VantageScores |
|
|
|
| With
VantageScore, the factors contributing
to the score include: |
| • |
32% payment
history |
| • |
23% utilization
of available credit |
| • |
15% credit
balances |
| • |
13% length
and depth of credit history |
| • |
10% recently
opened credit accounts |
| • |
7% available
credit |
|
|
|
|
|
|
| FICO scores |
|
|
|
| For
FICO, factors contributing to the score
are: |
| • |
35% payment
history |
| • |
30% amount
owed |
| • |
10% types
of credit in use |
| • |
15% length
of credit history |
| • |
10% new credit |
| |
|
| |
|
|
|
|
Credit scores from vary from bureau to bureau due
to differences in scoring methods and data. Because VantageScore
is touted as using the same algorithm to calculate scores across all the credit-reporting
companies, numbers should vary only if the bureaus have different data on file.
Data variances sometimes occur because lenders report credit activity to only
one or two bureaus. Credit records often also contain inaccurate information. Who's
using VantageScore?
Today, more than 200 lenders are testing VantageScore
as a primary scoring method, says Experian's Oliai, who says he expects lenders
will test the three-month-old system for at least six months to a year before
using it to make credit-granting decisions. To date, no lenders
have announced that they're switching to VantageScore. Credit bureaus expect that
smaller lending institutions will be earlier adopters of the scoring system and
that large banks will wait longer and perform wider testing before considering
a switch. While the credit bureaus have not disclosed how much
they will charge lenders to use VantageScore, Oliai says the amount is competitive
with the cost of tracking credit scores through FICO. Although lenders can implement
both FICO and VantageScore, he expects that the vast majority eventually will
pick one or the other. Each credit bureau prices and markets VantageScore independently. FICO
also employs scorecards developed to be predictive of consumers with limited credit
histories, says Tom Quinn, vice president of scoring for Fair Isaac Corp. In general,
Quinn says, the procedures used to determine the risks of lending to "thin-file"
consumers are quite similar to those used for evaluating people with lengthy credit
histories. Who benefits from VantageScore?
While VantageScore will be confusing at first, it's unlikely to change much in
the way consumers apply for and receive credit, says Matt Fellowes, author of
a Brookings Institution study
on credit scores and financial mobility. "It's clear this
is a business-driven decision. This isn't a consumer-driven decision," Fellowes
says, regarding the credit bureaus' collaboration on VantageScore. "It's
clear that FICO has the major market share, and the bureaus have always been hurt
that they each have their own scores." Fair Isaac Corp.,
the Minneapolis financial-services firm that introduced FICO in 1989, stands to
lose the most if VantageScore gains market acceptance. Its stock fell 6 percent
the day TransUnion introduced VantageScore. The credit bureaus stand to profit
the most if VantageScore succeeds. For consumers, Fellowes
says, VantageScore falls short of addressing a primary concern: mistakes in credit
records. Currently, credit bureaus are not required to publicly
report assessments of the accuracy of their information, although they do track
such data internally. Fellowes also sees risks associated with using a single
creditworthiness formula at all three credit bureaus. "I'd
much rather take the average between three different scoring methodologies than
to take the exact same methodology across all three bureaus," he says. | 
