Viewing credit from a new vantage

With personal computers, the basic choice is Mac or PC. With condiments, it's ketchup or mustard. Now, for credit scores, there's finally a choice: FICO or VantageScore. But good luck navigating the scoring maze to figure out which score is offered where.

Launched in March 2006 by the three major credit reporting bureaus -- Equifax, Experian and TransUnion -- VantageScore was created to answer the wishes of lenders who wanted an alternative to the widely used FICO score offered by Minneapolis-based Fair Isaac.

Whether VantageScore is gaining ground is tough to determine. President and CEO Barrett Burns said he'd like to be more candid about his company's clients and sales but insists that even he doesn't know the details. That's because VantageScore is independently managed and licensed back to the credit bureaus to sell to lenders. Burns brings a lender's perspective to the scoring company after a career with Citibank and Ford Motor Credit.

In town to meet with lawyers defending the Stamford, Conn.-based VantageScore against an antitrust lawsuit brought by Fair Isaac, Burns spoke about the mortgage crisis, credit scoring's shortfalls, and why he thinks VantageScore is on track to become a household name.

Q Why the need for VantageScore?

A We were developed for three reasons. The market was saying -- and I was one of the guys saying it -- we needed more scorable people because we'd run out of scorable populations. We needed a more consistent score because scores are different across the three bureaus and it drives the lender nuts and it drives the consumer crazy, as it should. And we needed a more predictive score. So it was developed to reduce the confusion, score more people and be more predictive. With more choice in the marketplace for the lenders, the consumer always wins.

Q How does VantageScore differ from the better-known FICO score?

Q Tell me more.

A VantageScore was built on data between 2003 and 2005 using 15 million credit files -- a huge statistical base. The importance of that time span is that that's exactly when subprime was cranking up. ... So it took those kind of things into account.

Q You say VantageScore is better with thin files? What does that mean?

A Someone who has less than three trades [lines of credit]. They tend to be the new entrant to the credit process or infrequent credit users. The new entrant could be a divorcée [whose spouse handled the family finances], a widow, kids coming out of college or high school. And immigrants. This is why so many lenders are looking at us; you're talking about millions of people who couldn't get scored before.

With other algorithms, you have to be in the credit file for six months or more. We will score as soon as someone is in the credit file. Other algorithms will drop you if you haven't been active for six months. This is important. There are an awful lot of people out there who are cash-based consumers. If they're not using their credit in six months, they'll get dropped. We'll go up to 24 months. That gets the underserved consumer more access to mainstream credit. Gets them away from predatory lenders, if they deserve that.

Q Credit bureaus sell their own proprietary scores as well as the FICO score. Why would they buy VantageScore?

A If a model is still in place, they have to support it. It's a long sales cycle and that's why we're thrilled Fair Isaac has come out with FICO 08. As soon as a lender looks at a new version, they say, "Might as well look at your version too."

Q Who are your clients and are you meeting your financial goals?

A We cannot talk about sales or pricing because that could be collusion -- that's what the whole lawsuit is about. So we don't talk about sales at all and the three credit reporting companies don't tell each other who they're talking to or how they're pricing it. Lenders don't want to announce who they are using. So it's very hard to know who is using who. Basically they're saying all major lenders are using or testing VantageScore.

Q Should consumers know their VantageScore and their FICO score?

Q Isn't there a better way?

A All algorithms go back to an odds chart and so we're saying, "Use the odds chart." So you'd say: "My propensity to default is X." That's a much better way of understanding [credit risk] and it will take a while to get the consumer there. It sounds sophisticated, but it's a lot less sophisticated than having to know all these different scores.