March 14, 2006
Credit agencies adopt common reporting score
By Jonathan Stempel
NEW YORK (Reuters) - The three major U.S. consumer credit
reporting agencies on Tuesday announced a new credit scoring
system that they said will simplify the process by which
Americans obtain loans.
Britain's GUS Plc, in a statement said they adopted the
"VantageScore" in response to "market demand for a more
consistent and objective approach to credit scoring."
In the past, the agencies used their own formulas to gauge
credit-worthiness. This created the possibility of widely
varying scores, which could complicate consumers' ability to
obtain credit cards, auto loans, mortgages or other financing.
Many lenders now use "FICO" scores, named for Fair Isaac
Corp., which developed software used to generate them.
The VantageScores will range from 501 to 990, compared with
the current 350 to 850 range. Higher scores will still indicate
greater levels of credit-worthiness, possibly leading to lower
interest rates and better borrowing terms.
"For consumers, it will create some confusion," said Greg
McBride, senior financial analyst at Bankrate.com, a provider
of financial data and advice. "Saying you have a credit score
of 750, for example, takes on a whole new meaning. It was a
good score on the old system but is only fair in the new one."
A spokesman for Minneapolis-based Fair Isaac did not
immediately return a call for comment.
The credit-reporting agencies said they may still generate
different scores for a single consumer, but the variances will
result from "data differences within each of the three consumer
Experian and TransUnion said lenders and borrowers may
interpret the new scores as though they were grades awarded in
A 901-990 score will be considered an "A," for example. "B"
would equate to an 801-900 score, "C" to 701-800, "D" to
601-700, and "F" to 501-600.
"The range of scores is more intuitive to the consumer,"
McBride said. "Lenders will have a choice about which scoring
methodology to use. Whether they accept the new system will
depend on pricing, and how widespread the new scores are
Equifax is based in Atlanta, Experian in Costa Mesa,
California, and TransUnion in Chicago.