By Richard J. Waple
The nation’s three major consumer credit bureaus - Equifax, Experian and TransUnion, - announced that they have created a new scoring system in an attempt to simplify the loan process. The new scoring system, called “VantageScore”, will be coming out later this year. In the past, each bureau used a unique formula to determine an individual’s credit score. This often resulted in a wide range of scores and has complicated the lending process. With the new scoring system, a single methodology will be used by all three bureaus, which should result in substantially similar scores from all three bureaus and simplify the loan process.
VantageScore will compete with FICO scores, which are used in approximately 75 percent of all mortgage applications. VantageScore will be based on a different scale than the FICO scores, and a major concern is that VantageScore is only going to confuse consumers, who are finally getting used to the scale of the FICO score. In an attempt to simplify the new scale, VantageScore will grade each score from an A-F, with an A representing excellent credit and an F signifying a major credit risk.
Critics point out that the new scoring system does nothing to address the major problem with the credit bureaus; inaccuracy of the data on each report. As a bankruptcy attorney, I regularly get calls from past clients who pull their credit report and realize that their bankruptcy filing is not accurately reported. It’s a relatively straight forward procedure to fix, see our article on correcting your credit, but can be time consuming to complete the process. Often, time is of the essence in a loan transaction, so I recommend that every individual who files for bankruptcy pull their credit reports before they apply for a loan, to make sure all the creditors are correctly listed as eliminated in bankruptcy. The bankruptcy court mails the creditors notice of the bankruptcy and it is their responsibility to update the credit bureaus with the bankruptcy information. I can only presume that this is a low priority for them, because it is not frequently updated.
I’m hoping VantageScore will help consumers better understand their credit, and I think that the grading system is a step in the right direction, but I would like to see more reform to ensure the underlying data on these reports are accurate. Only time will tell if the VantageScore system is adopted by major lenders and takes the place of the FICO score as the most frequently used credit score.
This entry was posted
on Friday, March 31st, 2006 at 12:57 pm and is filed under Bankruptcy Blog.
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