Agencies Adopt New Credit Scoring System

One of my favorite Buy List stock, Fair Isaac (FIC), is down sharply today on the news that the nation’s major credit bureaus have created a new credit-scoring system.

Equifax Inc., Experian and TransUnion LLC, a unit of Britain’s GUS Plc, in a statement said they adopted the “VantageScore” in response to “market demand for a more consistent and objective approach to credit scoring.”
In the past, the agencies used their own formulas to gauge credit-worthiness. This created the possibility of widely varying scores, which could complicate consumers’ ability to obtain credit cards, auto loans, mortgages or other financing.
Many lenders now use “FICO” scores, named for Fair Isaac Corp., which developed software used to generate them.
The VantageScores will range from 501 to 990, compared with the current 350 to 850 range. Higher scores will still indicate greater levels of credit-worthiness, possibly leading to lower interest rates and better borrowing terms.
“For consumers, it will create some confusion,” said Greg McBride, senior financial analyst at Bankrate.com, a provider of financial data and advice. “Saying you have a credit score of 750, for example, takes on a whole new meaning. It was a good score on the old system but is only fair in the new one.”
A spokesman for Minneapolis-based Fair Isaac did not immediately return a call for comment.

Shares of FIC are currently down about 8.6%.

Posted by on March 14th, 2006 at 2:59 pm


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