Last month the three major credit reporting bureaus Experian, Equifax and TransUnion introduced new scoring system called VantageScore. The idea is to focus on a broader history for each individual as well as a more accurate risk factor to decide if they are likely candidates to default (even if they score well). FICO has for along time been the model that lenders used to adjust risk. The problem many feel is that there is great inconsistencies in it's reporting. A college student with thin credit can score in the 700's with barely a years worth of history but someone with 20 years of mortgage, car, cc payments can have one blip last year and be knocked down to the low 600's. Inconsistancies should be reduced but will not eliminate this issue as each of the 3 main bureaus would fine tune the FICO model before posting a score. This is why you can see 60-80 point differences with some individuals. The new model will have all three using the same criteria although how things get reported (or not) to each bureau will still cause some differences in scores.
Will this help consumers? This I am not sure about as the reason for this change appears to be as much about the 3 bureaus not wanting to pay FICO for their services anymore (or possibly to create competition to lower their fees) as it is to provide a more accurate model. Lenders are more concerned about not getting stuck with that "bad" loan then they are losing out on a good one so they will always defer to the most conservative approach and many feel that is what the new program offers. This model is also suppose to account for risk factors on current homeowners to determine who might walk due to equity position, etc...rather than ability to pay. A big plus for banks when determining who gets a loan modification. Some will benefit from a new system, but will it help sell more homes or less?
The new model has new numbers too, based on the A-F grading system.
901-990 = A
801-900 = B
701-800 = C
601-700 = D
501-600 = F
It is still too earlier to see how this plays out. I just thought this was an interesting new twist to the ever changing credit and real estate market. It should add even more confusion to the "what is your credit score" question.
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