On March 14, 2006 the nation’s three main credit bureaus sent out a press release announcing that they have adopted a new credit scoring system. This new scoring system is not a whole lot different then the old FICO scoring system, but there are differences. The FICO scoring system had a different algorithm to compute the credit score for each bureau. The FICO scoring system also had a different range of scores for each bureau.
This was what the credit bureaus were looking to standardize with the new VantageScore system. The VantageScore uses the exact same algorithm to compute the score for all three credit bureaus. Also, the score scale is exactly the same for all three bureaus.
Here is a brief explanation of the VantageScore system. The VantageScore system will be on a scale ranging from 501-990 (the lower the score the higher the risk to potential lenders). The VantageScore also has adopted the classical academic scale to make it easier for consumers and lenders alike to understand where they rank with their score. This academic scale is grouped by the following:
A- 901-990
B- 801-900
C- 701-800
D- 601-700
E- 501-600
The VantageScore just like the FICO score will be based off the information that is reported on the credit report. It will reflect how often a consumer borrows money, how responsible borrowers are at paying back their debt on time, as well as other file content. Unfortunately the credit bureaus did not divulge how these factors would be weighted in the new VantageScore. The new VantageScore will also be more accurate when rating a consumer who has a limited credit history. This is one area in which the FICO scoring system was not very accurate.
The FICO scoring system will not be done away with; in fact it will still be used by many borrowers to evaluate those who are looking to get a line of credit. It will be up to the credit industry and the individual enders to decide which score they use. In fact the rate of adoption of this new score will be set primarily by lenders themselves. As new information is presented about the new VantageScore system, we will make sure to keep you updated. If you have any questions regarding this or any other credit matter, please contact us at 1-866-639-3426 or you can email us at questions@ovationlaw.com.