Magazine article American Banker

Viewpoint: Now It's Up to Creditors to Use A New Scoring System

Magazine article American Banker

Viewpoint: Now It's Up to Creditors to Use A New Scoring System

Article excerpt

Predicting credit risk has historically been like watching a weather forecast on different channels -- mostly reliable, but with a varying chance of rain. In the past credit grantors have sought more predictive risk scores that are aligned with business needs.

On March 14 we and the other two national credit-reporting companies answered the call for a scoring option. The decision to take advantage of this market invention now lies in the hands of the credit-granting community.

VantageScore gives businesses a highly predictive scoring system that for the first time allows for objective scoring across all three of the nation's credit-reporting systems. It employs a unique characteristic-leveling process to reduce the data variance. Simply put, leveling ensures that data is interpreted in the same way when compiling a score.

In the marketplace, this means that lenders now have a better process for determining credit risk and making informed decisions. Ultimately, this results in increased ROI for our customers.

For the system to truly affect the industry, it must be supported by regulators and adopted by credit grantors. I urge the credit-granting community to test its impact.

The system creates market opportunities for lenders by returning more predictive scores on consumers with limited credit histories, known as "thin-file" consumers. Better equipped to make more informed predictions about the thin-file population, lenders stand a better chance of gaining customers who might have been overlooked otherwise, and consumers benefit by obtaining the loans they desire. …

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