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New credit scoring system

The three major consumer credit reporting agencies have designed a new credit scoring system.

Equifax, Experian and TransUnion announced that the new credit scoring system called “VantageScore” was a direct result of market demand for a more consistent and objective approach to credit scoring. VantageScore is aimed at simplifying the loan process for both lenders and borrowers.

Until this agreement the agencies used their own proprietary formulas to create their own scores. This complicated scoring as each lender dealing with a consumer’s application for a credit card or a mortgage might have to reconcile three widely different scores.

With the new system, a single methodology will be used to create the scores.

Kerry Williams, group president of Experian’s credit services division, told The Associated Press that his agency was making the new scores available immediately to financial institutions and expected wide adoption. He did not expect the scores to be in use for consumers until later this year.

Credit scores are important because they measure how much debt a consumer is carrying and how well the consumer keeps up with bills. The higher the score, the more creditworthy the consumer and the lower the interest rate the consumer is likely to be charged when applying for credit.

The three credit agencies termed the move to a unified score as “unprecedented.”

The scores will range from 501 to 990. The top end is slightly higher than current score numbers in use.

Colleen Tunney, spokeswoman for TransUnion, told reporters and credit industry representatives when in a conference call that the new score was created by looking at millions of consumer files at the same time to ensure consistent readings across the three bureaus’ data.

Acceptance of the new credit scoring by lending institutions is not immediately known. The first step of communicating with credit granters is happening at this point in time. Test marketing to some customers is happening. It is noted that for any score to have merit in the marketplace, all parties must be accepting the concept and willing to implement it.

Many lenders, especially those in the mortgage business, use FICO scores, which are named for Fair, Isaac Corp. which developed them. Others use proprietary scores from the individual credit bureaus or use the bureau data to generate their own scores.

Current set up of the VantageScore would reflect a consumer’s frequency of borrowing and delinquency in paying bills to maintain consistency with current consumer credit ratings.

In a separate statement, Experian said the new scores will be grouped on “the familiar academic scale.” Experian gave these groupings:

A — 901-990

B — 801-900

C — 701-800

D — 601-700

F — 501-600

VantageScore is being independently marketed and sold separately through each of the three national credit reporting companies via licensing agreements with VantageScore Solutions LLC. VantageScore is jointly owned by the three credit bureaus. VantageScore does not yet have a headquarters, although an informational Web site had been set up at http://www.vantagescore.com.

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