Remember being in high school, when it seemed your whole life would be determined by your SAT score? Well, now there's a new score that will affect your entire life. It's called your VantageScore -- a new credit rating announced Tuesday by the nation's three largest credit bureaus. Credit bureaus are best known for compiling your credit report, which merely reflects the information collected by the bureau from anyone who has granted you credit or who inquires about your credit. Your credit score uses a proprietary modeling process, designed to weight factors in your credit report -- such as the amount of debt you have outstanding and your history of prompt payments. So far, the best-known credit score has been the FICO score, so labeled because it was created by a pioneering company in the business, Fair Isaac ( FIC). But a variety of other credit-scoring models have been used by both lenders and credit bureaus. The result has been a bewildering range of credit scores that showed wide discrepancies. Depending on which score was used, you might have been turned down for credit, or been required to pay a higher interest rate. To simplify the process, the three major credit bureaus -- Equifax ( EFX), Experian and TransUnion -- teamed up to create the new VantageScore, which will range from 501 to 990. The higher the score, the more creditworthy the individual is deemed to be. The new scoring system was created by taking information about a large group of consumers from all three credit bureaus at the same time to create a consistent, standardized scoring formula. It uses a new algorithm to create the score, a process so unique that the joint venture has applied for a patent on it. The companies say that the new scoring formula will eliminate discrepancies as wide as 30% that currently exist in credit scores. But there will still be some disparities, because the three major credit bureaus don't receive exactly the same information. For instance, some credit grantors report your payment history to only one or two of the bureaus. Still, using the same scoring system should provide a lot more uniformity to the process.
It's expected that the major credit grantors will quickly start evaluating the new score, comparing it to their existing models. Equifax said it will wait until lenders accept this new score before marketing it to consumers. That's expected to take at least six months. Each bureau will market the VantageScore in its own way and set its own price. Federal law requires each bureau to give you one free credit report a year. (The easiest way to do that is to go to
annualcreditreport.com and click on the link to each bureau.) Thus the credit bureaus will use the new VantageScore, along with their credit monitoring services, as a source of revenue. The credit bureaus are expected to bundle their own, or all three, credit reports, along with the new VantageScore, for a fee to be determined. But that depends on how widely accepted the new VantageScore becomes. Because so much is affected by how we're viewed by credit grantors, we can applaud the three bureaus for their joint effort. It's time consumers knew the real score. And that's The Savage Truth.