Barrett Burns is president and CEO of VantageScore Solutions LLC, the company behind the VantageScore model, which is a generic credit score developed as a joint venture among the three national credit reporting companies, or CRCs: Equifax, Experian and TransUnion. Prior to joining VantageScore as CEO during its formation in 2006, he was executive vice president at U.S. Trust, heading the National Private Banking Group and a member of U.S. Trust’s Executive Committee and the Senior Management Team of its parent company, The Charles Schwab Corporation. Previously, he served as executive vice president of global risk management and chairman of the Credit Policy Committee at Ford Motor Credit Company and as senior vice president and COO of Bank One’s auto finance division, the largest noncaptive lender in the U.S. at the time. Burns also spent more than a decade with Citibank, lastly as group credit officer for an international consumer banking division that included operations throughout the U.S. and Europe.

He is a 2011 member of the Federal Reserve Board’s Consumer Advisory Council, a director of the Homeownership Preservation Foundation and also serves as a member of the Corporate Board of Governors for the National Association of Hispanic Real Estate Professionals. Burns received a bachelor’s in economics from Washington and Jefferson College. (Bio provided by VantageScore.)

Say “credit score,” and many consumers may automatically think of FICO, the most widely used credit score. Depending on where you buy your score, however, you may get one from another, newer upstart: VantageScore.

Launched in March 2006, VantageScore was the brainchild of the three credit reporting bureaus: Experian, Equifax and TransUnion. Pulling together their knowledge of credit data, these three developed a credit score designed to score more people by using oft-ignored credit data.

In this Q&A with, Barrett Burns, CEO of VantageScore Solutions LLC, talks about the inception of his company’s credit score, how it differs from other scores and how consumers, especially those with “thin files” or scant credit records, can benefit from this score.

What is VantageScore?

VantageScore is a generic credit-scoring model. Generic meaning it uses the general data in the major credit files of the major credit reporting bureaus as opposed to a custom score that often large lenders use in very large portfolios for their own target market and their own circumstances.

Why did the credit reporting agencies decide to form VantageScore?

A number of lenders … asked the bureaus to accomplish three things … around 2002 or 2003. The major lenders were seeing — and I say major because they have databases big enough to see it — roughly (around the year) 2000 that consumer debt per person was increasing very dramatically at the same time a number of … nontraditional mortgage products were coming into the market. A number of the larger lenders were beginning to ask if existing models in the marketplace were picking up these dramatic changes.

The second thing is a number of the lenders were running out of what we call score-able populations. They were running through all the populations that could be scored, and they really thought there were other people out there that could be scored that weren’t being (scored).

The third issue was a growing frustration that the scores between the bureaus in many cases were so different. So if you are pulling a tri-bureau score, particularly the mortgage industry, which one do you use? The highest? The lowest? The median? The average? What do you do and how do you explain that to your customer?

How is VantageScore different from FICO?

We have one model that spans the three bureaus. When the three companies put their teams together to develop our model, on each of those teams was a person who was an expert in their databases, and they quickly began to realize that the data in the three companies were defined slightly differently — differently enough to drive a different outcome in scores. So, we went through a process called characteristic leveling. There can be roughly about 500 characteristics in a file, mathematical characteristics. You go through a combination/permutation of deciding which ones are the most predictive, and we found about 195 of those characteristics often were defined differently in the three bureaus. We pulled the data out, redefined them consistently and put them back in.

The scale is different. It’s tied to school grades — you know, A, B, C, D, F. We have letter-graded keys to the scale, and that’s for customer education. Scoring is all about rank ordering. It’s the population of how millions rank order against the large population of hundreds of millions.

Coming back to how we are different, the reason why we score more people … is because we found there was a lot of data in the file that other model developers were not using. For example, many models don’t score for the first six months of credit usage, and they will not score if you haven’t used credit for six months. Those two things right there mean new entrants coming in can’t get use of their credit for six months, (and) people who are infrequent credit users lose a score after six months of nonusage. There are millions, millions of them. The way I like to say it: They don’t get rewarded for having very sensible debt attitudes. A lot of people just don’t want to borrow money or just don’t use credit, and they should be rewarded for that, and they ought to be able to get a score.

How many lenders and what types use VantageScore?

Being a generic credit score, any lender could use it. We score billions of transactions a year. I can’t tell you who specifically is using it and the reason for that is antitrust issues or potential antitrust issues. We stay away from selling it. We license the model to the bureaus and they sell it. And because they are competitors, at our board meetings and other meetings we have, we don’t discuss who is using it or at what price for two reasons. One, it could have the appearance of collusion; that we are ganging up on other model developers to kick them out of business, which is illegal. The second thing is the three bureaus are so highly competitive, they don’t want each other to know in what applications or which parts of the lenders they are being used.

We do know at a high level that four of the top five financial institutions are using us. Five of the top five credit card issuers are using us, two of the top five auto (lenders). And then we just broke into the mortgage industry with one major lender. We have hundreds and hundreds of lenders, but that’s the big guys.

How does VantageScore capture consumers with thin files?

There are lots of numbers thrown around about how many may be considered unscore-able — somewhere between 35 (million) and 50 million, that seems to be the number in vogue. It’s a big number that’s … generally being blocked from mainstream credit. I say generally because some could get manually underwritten.

So, for thin files — they typically have few trade lines — like under three. So, we score those, and we score them very effectively. Especially when they first start using credit and then if they haven’t used credit for six months, we still score it.

We knew that even though rent wasn’t being reported at the time, we knew by the end of (2005) that rent data were highly predictive. So, we plugged that ability to score it into the algorithm. We do know other major models don’t score rent payment. But it’s important to score those payments for the obvious reason because it’s a high percentage of a renter’s liabilities, and they ought to get the benefit of making those payments on time (and) be rewarded for that.

Most renters tend to be thin file — I can’t prove that mathematically — but they are starting out in life and so forth. And I also have to believe that will really help first-time homeowners if they want to be a homeowner by scoring their rent.

Does VantageScore consider authorized user accounts?

VantageScore 2.0 does. Originally, we had excluded it in the beginning with (version) 1.0. The reason we did was because there were a lot of nefarious websites coming up that were enticing people to sell the ability to put someone on as an authorized user, so we excluded it. Those websites disappeared. So, once that happened, then we became comfortable with putting authorized users as an option back into version 1.0, and we do have it in 2.0. The risk went away.

VantageScore says it provides greater accuracy and consistency for the full-file consumer. How is that?

I’m glad you asked that question because we don’t want to be confused with what is often called an alternative credit score or credit-scoring model that only scores “alternative data.” We actually don’t use the word alternative data anymore because what is typically defined as alternative data like rent payments, utilities, is to us mainstream credit.

But we also of course score thick-file people as well — that would be the larger part of the population. On the consumer side, we score more people and more accurately. On the lender side, it gives the lender … a larger pool of score-able people. They can get more potential borrowers through the door, as the phrase goes, without lowering their credit standards.

How can a consumer see their VantageScore credit score?

Both TransUnion and Experian offer the VantageScore to consumers on their websites.

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