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Whither Fico -- Hither Vantagescore

Earlier this week, the three major credit reporting agencies, or credit bureaus, Experian, Trans Union and Equifax announced that they would be using a uniform credit scoring system. Each credit bureau will use uniform algorithms but will use their own proprietary databases to feed the data into the algorithm. The algorithm yields a credit score known as the Vantagescore. All of the credit bureaus are licensing the scoring algorithm from a company called Vantagescore Inc., with a website at www.vantagescore.com. Prior to this announcement the credit bureaus either used their own in house credit scoring system or licensed a credit scoring system from the industry leader, Fair Isaac. Inc. The Fair Isaac score, called the FICO score, is currently the industry standard. FICO has been criticized because actually Fair Isaac tailors the algorithm to the needs of different merchants, therefore, you may actually have several different FICO scores score based upon to whom and for what you apply for credit.

Vantagescore could be a big deal, or it could end up being much ado about nothing. I've seen nothing about the ownership of the Vantagescore algorithms, or even the trade-name, but it may actually be owned by the credit bureaus themselves. If so, it seems awfully fishy from an anti-trust standpoint. Secondly, lenders have a lot of money wrapped up in their current underwriting systems based upon FICO. The lenders may resist abandoning this investment to jump ship to Vantagescore.

In a best-case scenario, a common credit scoring standard with fixed underwriting grids could reduce the common phenomenon of subprime lenders intentionally lying about the applicant's credit rating to steer the applicant into a higher rate loan.

In a worst-case scenario, the Vantagescore could result in A-B-C-D-F grids that don't correspond to the mathematical loss probability models and actually increase the cost of credit for some individuals.

Side note about googling Vantagescore: On the day the newsstories came out about Vantagescore, I tried googling the term "vantagescore" and nothing came back on either a standard Google web search and Google news search. Dogpile returned lots of hits. I put off posting my comments for a couple days, and today Google returned expected results. I bring this up because it seems like Google was imposing some kind of embargo on returning results on a "Vantagescore" search. Hmmm.

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