VantageScore Solutions LLC in January will provide U.S. lenders with a major update of its credit-scoring model, this time using an unprecedented number of consumer credit files to more accurately reflect borrower risk following the economic downturn, the company recently announced.
The Stamford, Conn.-based company, a joint offering by credit bureaus Equifax Inc., Experian PLC and TransUnion LLC, launched in 2006 to compete with Fair Isaac Co.’s FICO score. The nation’s top 10 credit card issuers use both scores often to measure current and prospective credit card borrowers’ risk profiles.
In the recession’s wake, VantageScore for the first time is incorporating three years’ worth of consumer borrowing and repayment trend data in its scoring model versus the usual two years. The company made the change to capture a broader range of consumer financial behavior from both before and after the recession, the company says.
VantageScore’s new model harnesses data from 45 million anonymous consumer credit files gathered from mid-2006 to mid-2009, capturing financial activity both from before the economy crashed and from several months into the recession. That compares with about 21 million consumer files on which VantageScore historically has based its credit-scoring model, according to the company.
“In the last few years, we have gone through unprecedented economic volatility, and we wanted to adjust our model to reflect the very optimistic consumer behavior we saw in 2006 as well as the more-disciplined behavior we began to see in 2009,” Sarah Davies, VantageScore senior vice president of analytics and research, tells PaymentsSource.
During the recession “people who had a lot of credit lines suddenly were unable to pay their bills, and many were walking away from their mortgages, which caused a shift in bill-payment hierarchy,” Davies notes.
As a result, VantageScore last month said it is introducing a major update in its analytical algorithm, which lenders will be able to incorporate into their credit card and other underwriting processes early next year.
VantageScore’s developers said their goal was to reduce inconsistency among credit scores by using more-similar criteria. Recent data suggest that 63% to 65% of consumers requesting their credit scores from VantageScore will get the same result, within 20 points, from all three major credit bureaus, Davies says.
VantageScore produces credit scores in the range of 501-990, compared with FICO, which uses a score range of between 300 and 850. Many lenders use both companies’ scoring models, plus any they developed in-house or buy from other providers.
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