IndexCreditCards.com Questions Benefits of New Credit Scoring Alliance

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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, credit industry Web site IndexCreditCards.com questions if it will actually increase consumer 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, credit industry Web site IndexCreditCards.com questions if it will actually increase consumer confusion.

“Does VantageScore solve a problem, create a problem, or both?” asks Justin McHenry, Research Director for IndexCreditCards.com. “Having the credit reporting agencies align around a standard sounds ideal, but what they’ve created is a competing standard to what currently exists. Do competing credit scoring systems help consumers? Do we want the potential for a split lending market, with half the financial institutions consulting one type of report and the other half consulting a different report?”

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 have multiple FICO scores.

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, and consumers will have to keep them straight.

“Many consumers track their credit scores, especially those who are attempting to rebound from a bad credit history,” says McHenry. “They could be left wondering which credit score is more trustworthy. How will they know which is the ‘right’ score for their particular financial institutions?

“While I applaud the goal of creating a uniform standard, consumers may end up wishing the reporting agencies had collaborated to fix what was broken instead of starting from scratch.”

About IndexCreditCards.com

IndexCreditCards.com offers credit card news, research, calculators, and perhaps the most comprehensive index of credit cards available on the Internet today, with a master listing of over 800 credit cards as well as categorized lists based on interest rates, reward programs, business credit cards, student credit cards and credit cards for those with poor credit histories.

Information provided in this release may be reproduced free of charge, provided credit is given to http://www.IndexCreditCards.com.

CONTACT: Justin McHenry, 216.221.0312

WEBSITE: http://www.IndexCreditCards.com

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