VantageScore is a new Credit scoring model, which is advertised as being able to open the doors of opportunities that having credit produces. It is the brainchild of America's three major credit-reporting companies. VantageScore's highly predictive model uses a groundbreaking and patent-pending scoring system to provide lenders with an ordered rendering of consumer credit files across all three major credit reporting companies and the ability to score a much broader population. This will eventually allow lenders to help more creditworthy borrowers while allowing millions more Americans who use their credit more infrequently to be accurately scored.
What this will eventually mean to us is that the new credit scoring system will eventually allow Lenders to have a second formula for judging our past credit history which will be backed by the three giant credit bureaus. Your VantageScore will also look very different from your current FICO score.
The major credit bureaus are boasting their new system as a boon for borrowers, which is easier to understand while being more consistent than the current scoring models. VantageScore uses the same key data about your debts as the FICO scores in which you are already familiar with.
Equifax, Experian and TransUnion are privately owned companies that track accounts, balances and payment habits while a credit score simply puts a weight to those factors to develop an indicator of how much risk you pose as a borrower. Fair Isaac's formula for scoring is currently the one that most lenders prefer to use.
Every time a car dealership or appliance store asks one of the credit bureaus for your credit score, the information that the Bureau has gathered about you is sent through the proprietary FICO model. The lender then pays the credit bureau for the score after which the bureau in turn pays FICO for using its' formula.
This is a multimillion-dollar business for Fair Isaac accounting for 20% of the company's revenues, which means that the bureaus naturally want to cut out the middleman. They currently don't like the fact that they have to pay Fair Isaac, which is the reason that they are so intent on finding the next area of revenue generation. The bureaus have tried to break Fair Isaac's chokehold before with no success but they believe that the VantageScore may be a completely different story. Of notable interest, on the day that the new scoring system was announced, Investors drove Fair Isaac's stock down 6.6% even though the bureaus hadn't committed a single Institution to the new system.
FICO or VantageScore - Advantages for the consumer.
From what we understand from recent reviews, the VantageScore is more laid-back than FICO in general and is designed to better fit certain groups of consumers where the FICO algorithm most likely would score them very low. The VantageScore should provide a higher credit rating to people who would fall into either of the categories below:
- people who shy away form traditional banking systems by choice
- young adults who are just starting their careers
- recent widows, divorcee or individuals with little or no credit in their own name
- newly arrived immigrants
- People who have had previous Bankruptcies.
Using the current FICO scoring system these same people would only have the option to be made sub-prime mortgage loans where as with the new Vantagescore, your score will always be higher than your current FICO score.