What Is the VantageScore and How is it Different from the FICO Credit Score?

by Lynnette Khalfani-Cox, The Money Coach on December 1, 2010

in Credit Scores


 

Editor’s Note: We recently added a new article about the new VantageScore 3.0.

The VantageScore is a credit score jointly developed by the three credit bureaus. Originally launched in 2006, VantageScores at first weren’t being used by lenders. Amid the credit crunch, however, VantageScores have made headway in the financial world and now claim a six percent market share. That’s small compared to the widespread use of FICO credit scores. But it does illustrate that increasingly banks are starting to look at alternative credit scores – so perhaps you should too.

Learn how to fet your FICO Score for free


The Selling Points of VantageScores

Upon launching VantageScores in March 2006, the “Big Three” credit reporting companies – Equifax, Experian and TransUnion – promised that this new score would be more “accurate” than existing credit scores, and would also provide far less variance in credit scores among the credit bureaus. For instance, one big complaint from consumers over the years is that they might get one credit score from Equifax – say it’s 680, then another score of 710 from Experian, and a 740 score from TransUnion. With the VantageScore, consumers are supposed to benefit by getting scores that are much more similar because the three credit bureaus would all use the exact same methodology and coding to calculate credit scores. Additionally, the “Big Three” came up with a new numerical and grading system to classify a person’s credit, with credit scores ranging from 501 to 990 points. The breakdown for VantageScores looks like this:

Vantage Score        Grade        Risk Category
901 to 990        A        Super Prime
801 to 900        B        Prime Plus
701 to 800        C        Prime
601 to 700        D        Non-Prime
501 to 600        F        High Risk

VantageScores Compete With FICO Scores and Legal Battle Erupts


Collaborating in this fashion to come up with the VantageScore raised many eyebrows. Some critics and consumer groups openly questioned whether or not these credit agencies were guilty of antitrust violations. Even though the credit bureaus each sold and marketed VantageScores on their own, consumer advocates didn’t like the fact that these business competitors had secretly teamed up to come up with a product together.

The U.S. Justice Department launched an informal inquiry into the matter; that inquiry into VantageScore was closed in February 2007 with no action being taken against the credit bureaus. But as of this writing, other legal wrangling is ongoing. Fair Isaac, the developer of the rival FICO credit score, filed a federal antitrust and trademark lawsuit against the three credit bureaus and VantageScore Solutions LLC in October 2006. (Equifax was later dropped from the lawsuit). In any event, Fair Isaac lost that lawsuit in November 2009, when a federal jury ruled in favor of its competitors. Fair Isaac’s lawsuit had alleged trademark infringement, as well as unfair and anti-competitive practices. But the jury didn’t buy it, and neither did a U.S. District Judge, who had in July 2009 dismissed Fair Isaac’s antitrust, breach of contract and false advertising claims. As of this writing, Fair Isaac says it will appeal both decisions.

Some experts think that Fair Isaac losing its trademark lawsuit may open the door for VantageScores to become even more popular with banks and consumers. In an interview in 2009, Barrett Burns, the CEO of VantageScore Solutions LLC, told me: “We’re still working hard on adoption,” or getting banks to use the VantageScore model. Burns added that “the credit bureaus are responsible for all the sales activity” to the public. According to Burns, consumers can buy VantageScores from Experian and TransUnion, but not from Equifax, due to Equifax’s longstanding exclusive contract with Fair Isaac, creator of the FICO score.

How a VantageScore Differs From a FICO Score

When asked what makes a VantageScore better or different from a FICO score, Burns ticked off a host of reasons. He said VantageScores are more predictive of risk because they look at more recent consumer behavior and utilize insights gleaned during the credit crunch, as opposed to FICO’s classic score model, which was based on older consumer data. Burns also asserted that VantageScores do a better job of scoring more people and capturing a broader array of payment information. For instance, if a consumer has utility bill payments being tracked or reported anywhere, that payment history is taken into account, even though it’s not a traditional form of credit. “Those data sources are extremely predictive. So we will score that if it’s in a consumer file,” Burns said. The VantageScore methodology, Burns added, helps the “infrequent credit user, who tend to be the under-banked, the underserved, subprime, new credit users, and those with thin files.” Having a “thin file doesn’t necessarily equate to subprime,” Burns noted.
Additionally, “FICO doesn’t score in the first six months of credit usage,” Burns said. “We score as soon as a trade line comes into the credit bureau.” A trade line is simply an itemized listing or summary of a credit or financial account.

If you decide to get a VantageScore, or to learn more about this credit score through the credit bureaus, go to:

http://www.VantageScore.Experian.com

http://www..TransUnion.com


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Lynnette Khalfani-Cox, The Money Coach

Personal Finance Expert and Co-Founder at Ask The Money Coach.com
Lynnette Khalfani-Cox, The Money Coach is a personal finance expert, speaker, and author of numerous books on personal finance. She appears frequently as an expert commentator on television, radio and in print.

Latest posts by Lynnette Khalfani-Cox, The Money Coach (see all)

steve nichols

Disconnect between VantageScore and the 3 reporting agencies.

I recently purchased my Vantage Score as well as the scores from the 3 reporting agencies. The 3 agencies place me at 791, 791, and 797 out of 850 putting me in the 98-99% category. Vantage score gave me 792 out of 950 placing me at the 59% category. The Vantage score report text indicated that “Your report does not show any bankcard accounts such as Visa or Mastercard” and “Your report shows you have too few credit accounts paid on time in recent months”.

Clearly looking at the Experian report, it shows a Citigroup master card with a $20,000 limit and all bills paid on time for the last 10 years.

When questioning Experian about this they said the credit card did not show up because it is attached to a bonus miles program. (I get points for every dollar I spend using the card). When I asked them what that has to do with my creditworthiness they said that’s the way the algorithms work and if I don’t like it I can file a complaint with my attorney general.

This sounds idiotic and I hope Vantage Score customers are aware of this stupid and bogus reporting.

Carla

My FICO score is pretty good (700′s) with 25 years of credit history. But my Vantagescore comes up D??? In 25 years I have never had a chargeoff or bankruptcy, or any other credit problems. I’ve missed a payment ONCE (in 1997) and that was the post office’s fault. I am sick of being judged based on an arbitrary score rather than my true history of reliability.

haven58

Once again I do believe that all of this credit scores all just out of control and to keep good people down. And since our country is now in deep S$#T really were is all the credit scores doing for us now good people credit is now screw. Child hood diabetic and had to file for bankrupty because of all sort of bills and now returning back home from living in other cannots for sereval yrs. now I can’t get apt in my name because of it so I have to remain homeless until 2014, now tell me is this right. Twenty yrs. vested but been sick since I was young and now I feel like I’m being punish for it.

just done with it all.

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