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Credit Bureaus to Alter Scoring
Three agencies will aim for greater consistency with new computing method over the next two years.
Submitted by Tom Peterson

It's one of the most confounding things about credit scores: getting a "good" score from one credit bureau only to be dinged when you apply for a car loan or credit card when another credit agency ranks you lower.

The three major credit-rating bureaus announced plans Tuesday to lessen that frustration with a new credit scoring system that will standardize the methodology for computing scores. The new VantageScore is expected to be available to consumers in 18 to 24 months once financial institutions adopt it.

The new system will not eliminate the variations in scores among the three agencies because they will still use different databases to determine the number. But executives said that by standardizing the formula for computing the new VantageScore, it would eliminate one of the main factors that have contributed to the discrepancies.

"The beauty of this is that for the first time the only difference in scores is the data contained on the credit report," said Kerry Williams, president of Experian's Credit Services division. "And consumers will be able to review (their reports) to see what data is included."

For example, if one agency includes a 30-day late payment on your mortgage and another doesn't, you will know why the scores are different.

Unlike current scores, which generally are ranked on a scale of 300-850, the new scoring system will go from 501 to 990, mimicking the grading similar to that used in school. The 900 range equates to an A, under 601 an F.

But at least one consumer advocate was skeptical about the new score.

"It's going to confuse (consumers)," said Stephen Brobeck, executive director of the Consumer Federation of America, a nonprofit consumer advocacy group. He said the credit agencies would have done better to adopt a scale similar to the ones now in use, which are variations on Fair Isaac's FICO score.

"The biggest area of consumer lending is mortgages and the FICO score is still the gold standard (for credit rating)," he said. "What would have helped consumers a great deal was if the new score reflected the same (formula) and database and utilized roughly the same scale similar to the FICO score scale."

Mark F. Catone, senior vice president for products and market development at First American Credco in Santa Ana, which is the country's largest provider of FICO scores to the mortgage industry, said credit card and consumer lenders may be quick to adopt the new scores, but the mortgage industry probably would hold back.

"They are calibrated to the FICO scoring system, which will make it very difficult to switch," he said.

FICO officials could not be reached for comment.

The credit agency officials, who said the new system was devised in response to requests from financial institutions, believe the new score will still provide a valuable service.

"We are offering a different choice that is more predictive (of credit risk)," said Equifax spokesman David Rubinger, whose credit agency is the only one that uses a FICO score.

Tom Peterson Loan Officer and Realtor
Metro Lending Services
800-724-2789