VantageScore may be an improvement, but the FICO score still rules

The business of credit scoring has long confused consumers, as they have no idea how scores work or what they mean. Adding to the confusion that surrounds the credit report and scoring industry is the latest product from the three credit bureaus. The three bureaus - Experian, Equifax and Trans Union, have long used different scoring models to determine whether or not a borrower is “credit-worthy.” While the scoring systems looked the same on paper, with each using a number between 300 and 850 to determine the score, the resemblance ended there. Each bureau had different criteria for determining the figure and two of them were using a proprietary formula that they developed in-house. The third bureau used the Fair Isaac Co. system, known as FICO.  Consumers who bought their “credit score” from a bureau had no idea as to what figure they would get, or what it would mean to potential lenders.

Making things even worse is that lenders and creditors don’t necessarily submit financial information about their customers to all three bureaus, meaning that each agency is using different financial information to determine the score! Lenders tend to use the FICO model almost exclusively, so a consumer could buy a score from a bureau that is dramatically different from that used by a lender to whom they applied for a loan.

The bureaus tried to work this out this spring by introducing VantageScore. This is a unified product that each of the three agencies will offer, apparently in addition to current systems.  The VantageScore system was offered to lenders in March 2006 and now the product is available to consumers to purchase online. But should consumers buy this product?

It helps that each of the three bureaus is trying to come up with a consistent product to offer to the public. By using the same criteria and algorithms to come up with a score, they are attempting to lessen the confusion. Unfortunately, the issue of the information used is still there. Lenders will submit their information to one or more credit bureaus as they see fit, thus insuring that each agency will not have the same information with which to work. As the VantageScore product is still in its infancy, few lenders are using it right now. Those that are continue to use other models as well, most notably the FICO model.

What this means for consumers is that buying the VantageScore will have little use for them. One possible use would be to buy that very score from each of the three bureaus; that would allow a direct comparison to see how each bureau assesses an individual, using the same formulae. Consumers, however, should not be misled into thinking that by buying the VantageScore they will be looking at the same information that lenders will see when they apply for a loan. That isn’t the case.

As long as the credit bureaus make that clear to people before they buy the score, that shouldn’t be a problem.

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