While boasting about your 780 credit score at a cocktail party may make you think you are a lenders dream come true, however your credit score may not be as awesome as you believe.
Credit scores are a murky area, measured by an amassment of factors including debt, income, payment promptness and number of accounts amongst others. Those who pay their bills on time have few but significant credit relationships, no history of default and a steady income typically have a higher score.
Up until the past few years three main credit reporting companies were the gatekeepers of credit scores: Equifax, TransUnion and Experian. All use a measurement scale of 280 on the lowest side (or having no credit) to 850, the perfect, paramount score.
A score of 780 or above should be considered excellent by the three credit bureaus’ standards...until the VantageScore model is taken into account. The VantageScore scale range starts at 501 and goes to 990.
How is Does the VantageScore Differ?
Created in 2006, VantageScore was designed by the three major credit reporting companies as a way to better predict the borrower’s ability to repay the loan.
Although the big three credit scoring companies generally adhere to a similar scoring system each scale is slightly different, making it difficult to ascertain the precise accuracy of ability to repay difficult (Transunion’s score ranges from 300 to 850, Equifax 280 to 850, and one Experian score ranges from 360 to 840 and another ranges from 330 to 830).
VantageScore is based on the traditional “school grading system” where scores over 901 equate to an “A” or the best; 801 to 900 equals a “B”; 701 to 800 equals a “C”; 601 to 700 equals a “D” and anything below 600 is an “F.”
According to the VantageScore website, the system, “enables mainstream lenders to score more consumers more accurately. The VantageScore model was built utilizing anonymous consumer credit data reflective of current economic conditions. The design methodology and management framework ensures that VantageScore will continue to deliver a highly predictive capability.”
For the consumer, “VantageScore facilitates greater access to credit for the underserved or those with thin credit files who deserve access to credit at fair terms, conditions and pricing. VantageScore also provides score accuracy and consistency for the ‘full file’ consumer.”
John Ulzheimer, president of consumer education at SmartCredit.com and a former manager at FICO tells CNN Money that consumers see a score of 900 and think it must be wrong since they know the FICO score maxes out at 850.
He adds that the VantageScore system isn’t too far off from the typical big three credit reporting agencies, however borrowers are often confused by the ratings. "But if they get a VantageScore and assume it's the same as their FICO score, then they'll be disappointed when they apply with a lender."
VantageScore and the Credit Union Industry
Over the summer, the National Association of Federal Credit Unions (NAFCU) named VantageScore as a preferred scoring partner to the industry.
“The challenged economy of the past few years has affected many credit union members, and credit unions are seeking new and more effective approaches to risk management to better meet the needs of both mainstream borrowers and the underserved,” said David Frankil, President of NAFCU Services Corporation in a press release.
“Better credit scoring analytics translate directly into more lending to more members, especially those that are credit-worthy and would have been denied under old scoring models,” Frankil says. “It’s critical that credit unions leverage innovation in the credit scoring industry to drive performance, which is why VantageScore Solutions is such a terrific fit for our program.”
“Robust underwriting is critical to the credit-granting arms of our nation’s credit unions so I am delighted that VantageScore Solutions has been named a NAFCU Services Preferred Partner,” added Barrett Burns, President and CEO of VantageScore Solutions. “With the VantageScore model, credit unions receive a highly predictive credit scoring model that scores a broader population and provides more consistent scores across all three credit reporting companies. This is a value proposition which resonates with credit unions as they seek to better serve their members.”
Some credit unions have already updated members about VantageScore such as University Federal Credit Union ($1.4 billion, Austin, TX). The credit union explained the scoring system on its website, including how scores are determined and how to improve on a current VantageScore.
Check with your credit union to learn more about VantageScore and how it impacts your borrowing power.