NEW YORK - The nation’s three major consumer credit bureaus have created a new credit scoring system designed to make it easier for financial institutions to evaluate loan applications and to give consumers a better way of measuring their financial health.
The credit reporting agencies — Equifax, Experian and TransUnion — announced (in March 2006) that they’re introducing “VantageScore” to banks, mortgage lenders and credit card companies immediately. The new scores will be available to consumers after the lender rollout, probably later this year.
“There’s clearly been a need out there to have a consistent scoring model that works across all three reporting agencies’ data,” said Kerry Williams, group president of Experian’s credit services division. “And consumers need a consistent score that they can understand and use in their own financial lives.”
Credit scores traditionally have been three digit numbers that lenders used to evaluate the creditworthiness of borrowers. The scores reflect how much debt a consumer is carrying, how good they’ve been at paying back loans and how many credit applications they have outstanding.
They’re important because lenders use them to determine if they’ll loan money to consumers and at what rate. The higher the score, the more creditworthy the consumer is considered and the lower the interest rate the consumer will be charged.
The agencies in the past each used their own proprietary formulas to generate their own scores, meaning that a lender dealing with a consumer’s application for a credit card or a mortgage might have to reconcile three widely different scores.
With the new system, a single methodology will be used to create the scores for all three credit bureaus, the agencies said.
As a result, scores will be “virtually the same across all three of the national credit reporting companies,” said Experian spokesman Donald Girard. Any difference in the scores provided by each agency will reflect differences in the data they’ve collected in consumers’ files, he said.
The credit reporting agencies said in their announcement that VantageScore “will provide consumers and businesses with a highly predictive, consistent score that is easy to understand and apply.”
New credit scoring scale
Experian said the new scores will be grouped on “the familiar academic scale” with A and B being the best potential borrowers, and D and F being the weakest:
- A — 901-990
- B — 801-900
- C — 701-800
- D — 601-700
- F — 501-600
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