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Credit card blog Plastic Rap
Ellen Cannon
Managing Editor Ellen Cannon blogs about credit and debit cards, prepaid cards, gift cards, credit scores -- anything related to the plastic in your wallet. Sign up for news alert to be notified of updates.
 By Ellen Cannon
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Thursday, July 30
Posted 2 p.m.

VantageScore gains in lawsuit

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.

Monday, July 27
Posted 3 p.m.

FICO 08 available at all bureaus

Bankrate reporter Leslie McFadden contributed this entry.

FICO, the Minneapolis company that created the popular credit score, announced on Wednesday that the latest version of its scoring model, dubbed FICO 08, will be available at the three largest credit reporting agencies by the end of July.

More than 400 lenders have begun using or testing the new scores, according to a FICO press release.

That's a steep adoption curve, notes John Ulzheimer, president of consumer education for San Francisco-based Credit.com and CNBC contributor. "Basically it's the fastest they've ever seen adoption of a new scoring model."

For now, consumers still won't be able to get their Experian FICO scores through myFICO.com.

And currently, FICO scores purchased from myFICO.com don't yield scores computed by the new scoring model. "Consumers won't see those scores until at least one of the bureaus reports that lenders are asking for scores from that particular computer model version, the FICO 08 model, more often than they are scores from the older FICO models at that bureau," says FICO spokesman Craig Watts.

In January, FICO principal scientist Ethan Dornhelm told me that most lenders use FICO models that date back to 2004. Through myFICO.com consumers get Equifax FICO scores from the '04 model, but receive TransUnion scores computed by a 1998 version.

When the switch to the new version at myFICO occurs, you aren't likely to notice. Consumers are not told which version they are purchasing.

The new scoring model has the same range of 300 to 850, with higher scores representing lower credit risk.

One of the main differences between this edition of the scoring model and prior versions is that it will reduce score impact from the abuse of piggybacking. Piggybacking occurs when people with poor credit inflate their score by getting a person with good credit to add them as an authorized user on their account. Parents may do this to help their kids establish credit, for example. FICO has said it will still allow legitimate authorized user accounts to be scored.

The model will minimize score inflation where the authorized user doesn't have a legitimate relationship to the primary cardholder -- a situation that occurs when people pay strangers via credit repair firms to add them onto their trade lines. The company won't disclose how it will distinguish legitimate authorized user accounts from their abusive brethren.

FICO 08 will also have two more scorecards than previous versions that only had 10. That is, it will be more a more refined version, with better segmentation within the model. Low-risk consumers should score higher and high-risk consumers should score lower.

Questions? Comments? E-mail Plastic_Rap@Bankrate.com.

Wednesday, July 8
Posted 2 p.m.

Got your rate lowered?

Last week in all of the Bankrate newsletters, we asked readers to tell us if they had tried to negotiate APRs or fees with a credit card issuer. We heard from plenty of readers, many of whom had successfully had interest rates lowered or had fees forgiven. Several people told us that they had gotten the card issuer to give them zero percent interest for six months, provided they pay the minimum and pay on time.

Here's a story from reader Maryann:

I call my credit card companies at least once a month to ask them if I qualify to have a lower interest rate. The customer service department would then check to see if I qualify. For example, I have called American Express in the past when I noticed my interest rate was at 19%. They checked to see if I was eligible for that month for a lower rate, and they lowered it to 9%. So I decided started to call every month, and finally got it lowered down to 6%. I am going to keep trying until it is even lower.

Now that should encourage everyone to give it a try. But I think the key to negotiating is always paying on time and always paying at least the minimum. (Also key to improving your credit score.)

Oh, the minimum! A number of readers have complained about Chase raising the minimum from 2 percent of the balance to 5 percent. This is tough for many people. If you have budgeted a certain amount for monthly credit card payments, you'll have to go back to the drawing board and find somewhere to cut so you can pay more on the credit card debt.

But the credit card issuers are in the same boat: Their budgets were based on predicted income from cardholders paying their credit card bills each month. The recession has blown their budgets, though.

According to an article from Bloomberg News, the balances on delinquent credit card accounts jumped to 6.6 percent in the first quarter of 2009, compared with 5.52 percent in the fourth quarter of 2008. Delinquencies were up to 4.75 percent, 23 basis points higher than the previous quarter.

With unemployment climbing, the jobless will be letting their monthly payments slide. Hence, the rise in credit card delinquencies. So maybe this is why credit card issuers are more willing to make a deal now: It's better to take something rather than get nothing.

That's why Chase raising the minimum payment is confounding. Perhaps they're just trying to rush the inevitable for those cardholders?

But one thing all cardholders need to keep an eye on is fixed-rate cards. Bankrate's market analyst who covers credit cards, Brooks Kelly, just dropped off my weekly report on credit card changes. He said he's found that many issuers are changing their fixed-rate cards to variable rates. This week it's TD Bank switching its platinum business and rewards cards to variables.

Now more than ever, consumers have to read every piece of mail that comes from their credit card companies.

Questions? Comments? E-mail Plastic_Rap@Bankrate.com.

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