By John Campbell

Just when we’ve finally come to terms with the FICO (Fair Isaac & Co.) credit scoring system, the three national credit bureaus (Equifax, Experian and TransUnion) have unveiled the new Vantage score.

The Vantage score is an entirely new beast. It’s the end result of efforts by the credit bureaus to standardize the scoring algorithm each bureau uses when computing consumer credit scores. Although Fair Isaac licenses its traditional credit scoring system to the credit bureaus, each bureau applies the score differently. This often results in three different FICO scores for every consumer within the United States. In theory, the Vantage score should eliminate differing credit scores between the credit bureaus. In practice, this may be easier said than done.

Perhaps the fatal flaw in the Vantage scoring system is the fact that each credit bureau’s files often have information on consumers not available to the other credit bureaus. This can happen because of any of the following:

• Errors on a credit file at one or more bureaus

• Lenders neglecting to share credit information with all bureaus

• Bureaus not sharing their consumer data with one another

Without cross referencing the other bureaus’ consumer data, the credit bureaus could issue you up to three different Vantage scores; just as many as you may get with FICO. Where’s the advantage there?

In addition to a standardized scoring algorithm, the Vantage score makes use of proprietary statistical modeling techniques that the credit bureaus claim enhance the predictive abilities of their scoring system. They also claim that the Vantage score is more accurate than the FICO score in determining the credit scores of people with limited credit histories. The main problem with this “new and improved” scoring system is the fact that consumers are not being informed about how the score is calculated. We know that FICO scores are influenced by the following:

• Payment History (35 percent)

• Combined Debts (30 percent)

• Length of Time Credit Accounts Have Been Open (15 percent)

• New Lines of Credit (10 percent)

• Types of Credit Accounts (10 percent)

Consumers need to know how Vantage scores are calculated so we can improve these scores, if they’re put to use by a wide variety of lenders.

In regards to the actual credit scoring system itself, Vantage scores at first glance appear similar to FICO scores. FICO scores may range anywhere from 300 - 850 points while Vantage scores may range anywhere from 501 - 990 points. The primary difference with Vantage scores is that your score will be assigned a letter grade as follows:

• (Super Prime) A 901 - 990

• (Prime Plus) B 801 - 900

• (Prime) C 701 - 800

• (Non-Prime) D 601 - 700

• (High Risk) F 501 - 600

All things being equal, a 750 or higher credit score under the FICO system should translate into an A grade or 901 or higher under the Vantage system. With each letter grade covering nearly a 100 point spread, it is unclear whether lenders making use of Vantage scores will take into consideration scores at the high end or low end of a particular grade. For example, will you qualify for A rates if your credit score is technically a B+ at 895? How will your own Vantage score compare to your FICO score?

To see for myself how a FICO score may differ from a Vantage score in the real world, I enlisted the help of Experian and obtained a copy of both my FICO and Vantage scores online. Experian now offers individual Vantage scores to consumers for $5.95. My FICO score is currently 771, which puts me firmly in the “excellent” credit category. My natural assumption was that my Vantage score would be at least in the high 800s, which is a B or prime plus rating. I was wrong. It came in at 780, which is a C grade or prime rating. Reviewing my attached Experian VantageScore Report, I read the following:

“Factors in your credit file indicate that you may be viewed as a medium-low credit risk by lenders. Lenders may want to review certain areas of your credit history in more depth and may require additional documentation before approving a loan. Offers, such as auto loans, may have higher interest rates and may require a higher initial down payment.”

My VantageScore report also listed high balances on my credit card accounts, low available credit on my newer credit cards and balances-to-credit-limits being too high as reasons for my lowered credit score. Both my FICO and Vantage scores were derived from my Experian credit report so it would appear that the Vantage score tends to grade harsher, compared to a FICO score. Of course, your results may vary. If lenders begin to make the switch to Vantage scoring, I may not be the only consumer unhappy with a newly lowered credit score.

At this time, the number of lenders considering a switch or possibly the utilization of both credit scoring systems is unknown. According to mortgage credit reporting agency Credit Technologies, there are no known mortgage brokers making use of Vantage scores. The cost to rewrite underwriting guidelines and financial software that currently incorporate FICO scores to determine rates could be very expensive. Despite the costs of implementation, if the cost of obtaining a Vantage score is competitive and these scores are proven to be more accurate than FICO scores, Vantage scores could start to become commonplace within the lending industry. It will probably take at least a few years for the lending industry to decide what to make of Vantage scores. In the meantime, Fair Isaac is continuing to work with the credit bureaus to deliver FICO scores to millions of consumers a year.

With two credit scoring systems now competing with one another many may wonder if a new credit scoring system is even necessary. According to the credit bureaus the Vantage score was developed because society demanded it. Representatives of Fair Isaac seem to think otherwise. “Fair Isaac stays in close contact with all the major U.S. lenders, and none of them have reported to us a desire for a new scoring system,” said a Fair Isaac representative on a post at the Credit Infocenter Web site. To date, there is no reported evidence of consumer demand for a switchover from FICO scoring to Vantage scoring on the part of lenders.

Right now it would appear that the Vantage score is just muddying the waters of credit reporting.

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John Campbell is the writer and editor of CashBuzz, A financial portal for the rest of us. Check out cashbuzz.com for the latest articles on money management and tips and tricks that can help improve your finances. This article may be reprinted on your Web site if the copyright, author information and active link are included.