Credit scores are a major part of life, and can affect the ability of a consumer to obtain a loan, a line of credit, financing for purchases and a host of other factors that make up day-to-day living. Companies use credit scores as means with which to approve or decline requests for credit and financing, and in the past, such practices have been moderately accurate at best.
With the rise of identity theft and with the unreliability of credit reports, both consumers and businesses have fallen victim to faulty credit scores and inaccurate reporting. VantageScore is a new system designed to expedite the process of approving or declining customers for credit or financing, and for consumers to obtain a more precise credit report.
There are three major credit reporting agencies as it stands now: Experian, TransUnion and Equifax. Some creditors report to only one of these credit agencies, while others report to all three. It is difficult to control or to track the methods that different companies use to report credit delinquencies or problems, and it is a well-known fact that businesses are more likely to report a delinquent than a favorable account.
When a consumer wishes to check his or her credit report, three very different scores may be obtained from the three agencies based on which creditors have reported to which companies. For example, Experian might hold all of your credit information, while TransUnion could just as easily have escaped reporting at all. Similarly, there might be delinquencies reported to Equifax that fail to show up on an Experian report.
Because of these inconsistencies, VantageScore was created as a way to level out the reports from the three major credit reporting companies.
Score Leveling
When a business uses VantageScore to approve or decline customers for credit, they will inevitably receive differentreports from the three major credit bureaus, making it difficult to streamline the approval process. One company might give results that indicate approval, while another will suggest the necessity for a security deposit. For example, a customer might have credit reports that look like this:
|
|
TransUnion |
Experian |
Equifax |
|
508 |
637 |
700 |
|
|
Collections |
2 |
0 |
0 |
|
Approval |
Declined |
Deposit Req’d |
No Deposit |
In the example above, two different creditors reported consumer delinquencies to TransUnion, but did not report them to Experian or to Equifax. In the case of Experian, there might have been late payments that have since been resolved, resulting in a lower credit score. Those late payments were not reported to Equifax.
With these differences among credit bureaus, it is becoming increasingly difficult for businesses to make educated decisions when it comes to the risk factor that a particular consumer poses.
VantageScore hopes to streamline that process by combining the deep data acquired by each credit reporting agency to create one comprehensive report. This way, there are no questions about delinquencies reported to different companies, and the work required for businesses is lessened.
Predictability
Some consumers have no credit score at all, or have very little information that has been reported to credit bureaus. Using newly developed technology, VantageScore is able to predict the risk factor for a particular consumer using the data that has been collected to determine whether or not a business should approve them for credit. This saves businesses from having to perform manual inquiries into the background, spending practices and income levels for potential customers.
Manual vs. Automated Reporting Systems
Using VantageScore, businesses will be able to expedite the approval of consumers even further by receiving automated reports from the credit reporting companies.
In most cases, financial institutions and businesses have certain levels of approval. For example, a consumer with a credit score of 700 or higher will be approved; a consumer with a credit score of 600-699 will be approved with an applicable deposit; and a consumer with a credit score of 599 or lower will be declined for credit.
There are gray areas, however, concerning the current system that require the manual examination of data in order to reach a conclusion. Thus is further complicated by the fact that one credit reporting bureau will have different decisioning formulas than others, resulting in major inconsistencies.
VantageScore hopes to eliminate that possibility by establishing a single, all-inclusive decisioning formula that will be consistent among all credit bureaus, regardless of differences in hard data. In other words, even when a collection attempt is reported to only one agency, that delinquency will be included in the final report from VantageScore.
Common Range Scores
VantageScore is a combination of the three major credit reporting bureaus, and therefore is equipped with a single score reporting system. This solves the problems of obtaining three different credit scores from three different companies; instead, only one score is issued, which makes approval decisioning much more effective.
Credit scores through VantageScore range from 501 to 990. The lower the score, the greater the financial risk taken upon by the financial institution or company.
Using this system, businesses can generate a more idealized formula for approving or declining clients. They can set limits for approval of credit, and stand by those limits without fear of missing something from another report. They receive all of the information they need in one step, rather than having to manually inspect three separate reports.
This results in what VantageScore calls a “pass/fail” or “for deposit/no deposit” strategy in which clients can be approved or declined based on one comprehensive score.
Consumer Choice
This new system developed by VantageScore will also give both consumers and businesses a choice. VantageScore is an option – not a requirement – and credit scores can still be obtained manually from the three credit reporting agencies as they always have before.
Along the same lines, each of the credit reporting agencies will be selling VantageScore reports in addition to their own. Prices will vary among Experian, Equifax and TransUnion reports, and each distributor will be able to include their own inclusive reports based on credit risk factors.
VantageScore is still a competitor for the business of both companies and consumers. Although they seem to be targeting companies more than individual consumers, everyone will still be able to make an educated, personal decision about what type of credit report to obtain depending on the needs of the individual.
There will never be a perfect credit reporting system. Credit scores and reports will continue to depend upon the efficient reporting of creditors and financial institutions, and individual reports will vary based on deep data collected.
Consumers are encouraged to regularly obtain their credit reports, either through VantageScore or by other means – in order to protect themselves against identity theft and inaccurate reporting. Companies should likewise practice diligence when collecting data for the purpose of approving or declining customers. If the data does not appear to be conclusive, manual strategies can be implemented to protect both the customer and the business.
