Three National Credit Bureaus Team To Create New Credit Risk Score
The nation's three credit reporting bureaus have teamed up to create a new credit risk score to help cut through some of the confusion created by the variety of scores currently available.
VantageScore was developed by Atlanta-based Equifax, Chicago-based Experian and Costa Mesa, Calif.-based TransUnion to bring a more consistent and easy-to-understand score to the credit marketplace.
While the three companies collaborated to create the algorithm used to calculate the score and the score range, they are marketing the score separately via licensing agreements with VantageScore, LLC, which the three companies created to house the score.
"The new score fulfills the market need for choice, consistency and clarity," said David Rubinger of Equifax.
Experian's Donald Girard explained that in order to create the score, each of the three companies sampled the same files at the same moment in time. "This ensures that any score variance would be attributable only to the content of the files themselves," he added.
This is the first time the three credit bureaus have worked together to create a highly predictive score applying the same scoring method and range, noted Colleen Tunney of Trans Union.
The companies said they hope that another benefit of VantageScore is that it will be able to provide a score for more "thin-file" consumers-those consumers who, due to lack of reportable credit history, often can't get a credit score and are, as a result, often shut out of the credit process.
TransUnion, Experian and Equifax all were adamant that the creation of this new score doesn't replace or eliminate any of their respective models already in place. "Our existing products are all very good, and each of the companies will continue to market those," Girard offered.
The big challenge will be to convince credit grantors to lend credence to VantageScore.
"In order for any score to have merit in the market place, all aspects of the market must buy into it," Rubinger suggested, noting that all three of the companies are in the process of contacting regulators as well as credit grantors to stump for the new score.
Despite this historic alliance among the three competitors, Experian, TransUnion and Equifax made it clear there is no merger or other collaborative union in the offing.
In fact, during a joint press call, the three companies refused to answer many questions, deeming "proprietary" anything pertaining to how they each will market VantageScore, how VantageScore will or will not affect their other product offerings, or even how the score was developed (despite the fact that the development of that score was a collaborative effort among all three of them).
The scoring range for VantageScore is 501 to 990-the higher the number, the less the credit risk. One of the areas of confusion arising from other various credit risk scores is the fact that each one uses a different range and scale-Experian, for example, uses a range of 330 to 850.
Under VantageScore's range, an "A" score would be between 901 and 990, "B" between 801 and 900, "C" between 701 and 800, "D" between 601 and 700 and "F" between 501 and 600.