New way of scoring credit unveiled

NEW YORK — The nation's largest consumer-credit bureaus unveiled a new credit-scoring system they hope will give lenders a better measure of borrowers' creditworthiness and make the process easier for everyone to understand.

Consumer advocates worry it won't necessarily work out that way.

As Jean Ann Fox, director of consumer protection with the nonprofit Consumer Federation of America (CFA) in Washington, D.C., put it, the new system looks a bit like "a new recipe, but the same old ingredients."

The credit-reporting companies — Equifax, Experian Information Solutions and TransUnion — said Tuesday they're introducing "VantageScore" to banks, mortgage lenders and credit-card companies. After the lender rollout, the new scores will be available to consumers, probably this year.

Credit scores traditionally have been three-digit numbers that lenders use to evaluate borrowers. The scores reflect how much debt a consumer is carrying, how good the consumer has been at paying back loans and how many credit applications the consumer has outstanding.

The scores are important because lenders use them to decide if they'll loan money to consumers and at what rate. The higher the score, the more creditworthy the consumer is considered and the lower the interest rate the consumer will be charged.

The agencies in the past each used proprietary formulas to generate scores, meaning a lender dealing with a consumer's application for a credit card or a mortgage might have to reconcile three widely different scores.

With the new system, a single methodology will be used to create scores for all three credit bureaus, the agencies said. There will be minor variations in the results, based on differences in the data each bureau has accumulated, they said.

"There's clearly been a need out there to have a consistent scoring model that works across all three reporting agencies' data," said Kerry Williams, group president of Experian's credit-services division.

All well and good, said the CFA's Fox, but inaccurate information in the credit files maintained by the bureaus has been more of a problem for consumers than inaccurate scores.

"It doesn't address the underlying accuracy of the credit reports on which the scores are based," Fox said.

In addition to credit-agency scores, some large lenders generate internal scores, often using credit-bureau data. And many lenders — including the credit-card and auto-lending businesses — use FICO scores, named for Fair, Isaac Corp., which developed them.

The new system will provide scores ranging from 501 to 990, according to Tuesday's announcement.