Agencies Adopt New Credit Scoring System
Tuesday March 14, 1:09 pm ET
By Eileen Alt Powell, AP Business Writer

Consumer Credit Reporting Agencies Create New Credit Scoring System to Simplify the Loan Process

NEW YORK (AP) -- The three major consumer credit reporting agencies announced Tuesday that they have created a new credit scoring system aimed at simplifying the loan process for both lenders and borrowers.

The announcement by Equifax, Experian and TransUnion said the new "VantageScore" was "a direct result of market demand for a more consistent and objective approach to credit scoring."

The agencies in the past each used their own proprietary formulas to create their own scores, meaning that a 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.

"Under the new scoring system, credit score variance between credit reporting companies will be attributed to data differences within each of the three consumer credit files and not to the structure of the scoring model or data interpretation," the agencies said in a joint statement.

It added that VantageScore "will provide consumers and businesses with a highly predictive, consistent score that is easy to understand and apply."

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 is considered and the lower the interest rate the consumer is likely to be charged.

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 scores currently in use.

Colleen Tunney, spokeswoman for TransUnion, told a conference call with reporters and credit industry representatives 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.

She and spokesmen for Equifax and Experian said it was not immediately clear how quickly the new score would be adopted by lending institutions.

"Step one is we're talking to our credit grantors as we speak," said David Rubinger, spokesman for Equifax. He said each agency was marketing the new score to its own customers.