Will New Credit Scoring Alliance Produce Results, or Confusion?

New Credit Scoring Alliance Produce Results, or Confusion?

On Tuesday, the three major credit reporting agencies--Equifax,

Experian and TransUnion--announced their alliance in creating

a new credit scoring system called VantageScore.

While the agencies promise it will benefit consumers by providing

greater consistency, it is possible that it will actually increase

Does VantageScore solve a problem, create a problem, or both?

While having the major credit reporting agencies align around

a standard sounds ideal, what they've created is a competing

standard to what currently exists. Do competing credit scoring

systems help consumers? Is there potential for a split lending

market, with half the financial institutions consulting one

Currently the major credit reporting agencies calculate credit

scores through a system devised by Fair Isaac Corporation, and

the result is known as a FICO score. Although each agency uses

the same basic system, the consumer data each collects, along

with slight variances in the formulas used, cause credit scores

to vary across the agencies. This can cause confusion for consumers

who want to know their FICO score, only to find they actually

While the VantageScore system promises to iron out the differences

and provide a more consistent score, it is not a replacement

for FICO scoring, which will still be available through Fair

Isaac. The "scoring scale" is different between FICO and VantageScore--for

example, a 760 FICO score indicates good credit, while a 760

VantageScore earns a "C", indicating average credit. Financial

institutions will have to choose between these competing standards,

consumers track their credit scores, especially those who are

attempting to rebound from a bad credit history. Will they be

left wondering which credit score is more trustworthy? Or wondering

which is the "right" score for their particular financial

institution? While in one sense the move by the credit reporting

agencies should be applauded, consumers may end up wishing they

had collaborated to fix what was broken instead of starting