Last week, VantageScore, the 7-year-old credit scoring company owned by the three major nationwide consumer credit reporting agencies (CRAs) — Equifax, Experian and TransUnion — took a big step in the direction of making credit scores easier for consumers to understand, as it abandoned the score range of 501-990 it has used since inception. With its new 3.0 model, VantageScore has adopted the range of 300-850, making it consistent with the score range long held by FICO scores.
While clearly a step toward making credit scores easier to understand, plenty of opportunity for confusion still remains when it comes to sorting out the various credit scores. A primary point of confusion lies in the fact that you have more than one. Some credit scores are used by lenders, and some, referred to as “educational” scores, are sold or given to consumers to be used as an indicator of creditworthiness.
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To illustrate why a new VantageScore range may be confusing, imagine the merging of Fahrenheit and Celsius as temperature measurements. At face value it might seem that a single measurement system would be simpler for people to use, as the same language would be spoken when trying to describe hot and cold. But what if 80 degrees, as indicated on some thermometers, feels hotter than 80 degrees on other thermometers, due to different ways of calculating the temperature by the different thermometer makers?
This is where the aligning of score ranges between FICO and Vantage, though still a positive move, may fall just a bit short of a solution, as consumers will continue to be impacted by different scoring formulas that can be expected to produce different scores. The only difference resulting from this change is that the various scores will fall within a closer overall range than before, and consumers will still need to be aware of which scores are being used to evaluate their creditworthiness, as some will matter more than others to a lender.
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As an example of how these multiple scores arise, when applying for a mortgage it’s common to have a different FICO score at each of the three CRAs, though each uses the same score range of 300-850. The same also goes for VantageScores when scoring credit reports at the three CRAs, whether using their old range of 501-990 or the new range of 300-850. Differences in credit reports and scoring formulas will almost always result in score variations of some sort — regardless of the score ranges being used — with, of course, some differences being more critical than others.
In essence, whether FICO and VantageScore use the same or different score ranges, consumers can still expect to have at least six different scores between FICO and Vantage: three FICOs and three Vantage scores. The only difference is that soon a consumer’s Vantage Score will be numerically closer to her FICO scores than before.
Another way to look at VantageScore’s adoption of the 300-850 score range is that a consumer no longer has to compare, for example, a VantageScore of 900 with a FICO score of 750, and wonder which one is “the right one.” Soon she will be able to compare an 800 VantageScore with a 750 FICO score… and still wonder which one is “the right one.” The bottom line is that the foundations of building and maintaining good credit are what you should focus on, and not the scores themselves.