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US Credit agencies adopt common reporting score
By Jonathan Stempel
Reuters
Tuesday, March 14, 2006; 8:20 PM
NEW YORK (Reuters) - The three major U.S. consumer credit reporting agencies on Tuesday announced a new credit scoring system they said will simplify the process by which millions of Americans obtain loans.

Equifax Inc. <EFX.N>, Experian and TransUnion LLC, a unit of Britain's GUS Plc <GUS.L>, in a statement said they adopted the "VantageScore" in response to "market demand for a more consistent and objective approach to credit scoring."

In the past, the agencies used their own formulas to gauge credit-worthiness. This created the possibility of widely varying scores, which could complicate consumers' ability to obtain credit cards, auto loans, mortgages or other financing.

Many lenders now use "FICO" scores, named for Fair Isaac Corp. <FIC.N>, which developed software used to generate them.

The VantageScores will range from 501 to 990, compared with the current 350 to 850 range. Higher scores will still indicate greater levels of credit-worthiness, possibly leading to lower interest rates and better borrowing terms.

"For consumers, it will create some confusion," said Greg McBride, senior financial analyst at Bankrate.com, a provider of financial data and advice. "Saying you have a credit score of 750, for example, takes on a whole new meaning. It was a good score on the old system, but is only fair in the new one."

The new score, if widely embraced by lenders, may pose a competitive threat to Minneapolis-based Fair Isaac, whose shares fell 6.6 percent on Tuesday, closing down $2.79 at $39.37 on the New York Stock Exchange.

"As far as whether it's a real economic threat to us, we feel pretty comfortable," said Ron Totaro, Fair Isaac's vice president and general manager of global scoring solutions.

"We have a best-in-breed product that our clients are very happy with," he continued. "The switching costs for our clients are also huge and it's our FICO scores that are used by regulators and the secondary markets."

The credit-reporting agencies said the new scoring system may still result in different scores for a single consumer, but that variances will result from "data differences within each of the three consumer credit files."

Experian and TransUnion said lenders and borrowers may interpret the new scores as though they were grades awarded in school.

A 901-990 score will be considered an "A," for example. "B" would equate to an 801-900 score, "C" to 701-800, "D" to 601-700, and "F" to 501-600.

"The range of scores is more intuitive to the consumer," McBride said. "Lenders will have a choice about which scoring methodology to use. Whether they accept the new system will depend on pricing and how widespread the new scores are accepted."

Equifax is based in Atlanta, Experian in Costa Mesa, California and TransUnion in Chicago.

ID: 37112
Author(s): NCRC
Publication date: 14/03/06
   
URL(s):

www.ncrc.org

www.globalfairbanking.org
 

Created: 29/03/06. Last changed: 03/04/06.
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