It looks like the FICO score, long the only game in town when it came to credit scoring for mortgages, credit cards and other consumer loans, is increasingly getting some company.
The VantageScore, an alternative credit scoring system developed by the three major credit scoring companies, is becoming more accepted by lenders as a way of evaluating a potential borrower's credit risk. According to company figures, VantageScores are now accepted by four of the nation's five largest mortgage lenders and seven of the top ten financial institutions.
Scoring range changed to match FICO
Most borrowers' experience with VantageScores, if they've encountered them at all, has come from when they've ordered their credit reports from one of the big three credit reporting firms - Equifax, Experian and Transunion. The Vantage Score is typically provided free of charge along with those reports, while consumers must pay to directly obtain their FICO score.
This has led to some confusion in the past, where borrowers assumed they were getting the more commonly used FICO score. Until recently, the VantgageScore also used a higher range of scoring values - VantageScores ranged from 501-990, whereas the FICO system uses a range of 300 to 850 - leading borrowers to think their credit was better than it actually was.
The newest version of the VantageScore system, called VantageScore 3.0, addresses that issue by adopting the same 300-850 scoring range used by FICO, so scores produced by the two systems will be more comparable. They won't be an exact match, however, because the two systems take different factors into account when assessing a consumer's credit worthiness.
Will look at utility, rent payments
However, the VantageScore system, particularly the new version, incorporates some features that the developers say help it more accurately predict whether a consumer will be a good credit risk.
Most notably for consumers, particularly those who may have had difficulty establishing credit in the past, the VantageScore system takes into account payment histories for such things as utilities, phone bills, rent and other recurring debts not included in the FICO score.
The VantageScore company says they expect the new system, released March 11, will allow them to generate credit scores for up to 30 million borrowers who previously could not be accurately scored.
Impact of one-time events minimized
The new VantageScore model also makes adjustments for atypical events, such as the recent economic downturn or a natural disaster, so that the resulting short-term financial turmoil does not have an overly negative impact on a borrower who otherwise has maintained good credit.
FICO appears to be following suit, announcing the same day that it will explore ways of taking into account other factors besides credit debt in evaluating a consumer's credit risk.