Credit Reporting Companies Implement New Scoring Model



 By: Heather Hill Cernoch

Original Post Date: January 24, 2011

VantageScore 2.0, the latest credit scoring model from VantageScore Solutions, is now fully implemented at all three major credit reporting agencies — EquifaxExperian, and TransUnion — for use by financial institutions. “Given the dramatic shifts in today’s credit environment, lenders need information and tools that reflect these changes to make sound lending decisions,” said Kerry Williams, group president of Experian Credit Services and Decision Analytics. “VantageScore 2.0 delivers an even greater performance lift to provide a higher level of confidence in risk decisions when including the score in the underwriting and lending process.”

According to VantageScore Solutions, VantageScore 2.0 was created in response to the significant change in consumer credit repayment behavior. Sarah Davies, SVP of product management, analytics, and research at the company, said all credit models should be updated regularly to ensure they remain accurate and predictive. VantageScore 2.0, which was launched in October 2010, shows improved performance over VantageScore 1.0, she said.

“VantageScore 2.0 is built on a blend of consumer credit behaviors from 2006-2009, which creates a highly predictive score,” added Barrett Burns, president and CEO of VantageScore Solutions. “We’ve recently experienced a variety of economic scenarios, which have impacted consumer behavior of the past several years. This includes an increase in foreclosures in the housing market and changing payment priorities among consumers.”

VantageScore 2.0 enables lenders to increase populations of target customers while managing appropriate risk. The new credit model’s development sample is compiled from two performance time frames: 2006–2008 and 2007–2009. Each contributes 50 percent of the sample, reflecting more recent credit conditions.

The company explained that this approach reduces the model’s sensitivity to volatile behavior in a single time frame and helps create a predictive score that enables lenders to mitigate risks and make more informed lending decisions.

According to JP Morgan’s Global Equity Research division, “VantageScore is gaining traction. Chase recently adopted VantageScore, becoming one of the first major lenders to replace certain usage of FICO scores with the new model and view it as an important sign of the bureaus’ growing prowess in analytics, modeling, and decisioning.”

Connecticut-based VantageScore Solutions, LLC, is an independently managed company created by the three major credit reporting agencies to provide lenders with a consistent interpretation of consumer credit files across all three companies.