The long-simmering battle between FICO and VantageScore heated up a bit this week as VantageScore announced its latest scoring model and FICO announced a partnership with FactorTrust.
VantageScore is the seven-year-old organization jointly founded by the three national credit reporting bureaus to develop an alternative to FICO, for which they need to pay a licensing fee.
Vantage has rolled out two previous versions of its scoring system since its founding in 2006 and the third, dubbed VantageScore 3.0 provides the ability to score between 27 million and 30 million additional consumers who had been considered previously “unscoreable,” often because they lacked conventional credit histories, that company said.
“The VantageScore 3.0 model is both a new model, and new path forward for VantageScore Solutions and the credit scoring industry. The model was built with a lender’s implementation and risk management needs in mind, in conjunction with a deeper understanding for what information consumers need to become better managers of their own credit,” said Barrett Burns, CEO of VantageScore Solutions, in a prepared statement about the new scoring model.
“Today’s competitive lending environment dictates that lenders need access to as many creditworthy consumers as possible within their target universe, demanding the highest level of predictive performance from the credit scoring models they use,” Burns said. “The VantageScore 3.0 model facilitates this, and allows (risk managers) to confidently extend credit to tens of millions of consumers that were previously invisible to them so that those consumers have a greater chance to access mainstream credit, which is one of our principal goals.”
VantageScore claims to be used by seven of the top 10 major financial institutions but did not identify them or say whether they used the VantageScore exclusively. The company has also not yet said whether any credit unions use the score, a reticence that VantageScore’s Burns explained as having roots in the company's desire not to appear to be colluding on its marketing it scores.
That possible impression exists because VantageScore's ownership by the three big credit bureaus and has already been the subject of a lawsuit from FICO, which FICO lost.
VantageScore said its new model has included a scorecard to generate scores for those consumers with little or no credit activity. The new model also includes data from rentals, utilities and telecom payments to help generate scores.
In this regard the new VantageScore is similar to a new effort announced last week between FICO and FactorTrust to generate new scores that will address financially underserved consumers.
FactorTrust, a leading aggregator of payment data from financially underserved consumers, and FICO, announced their new partnership which they said will incorporate more data from underserved consumers in credit scoring models.
The companies said adding data from underserved consumers into widely used credit models will allow lenders to better judge – and lend – to consumers who may have thin or even non-existent credit bureau files.
“Alternative data can be a valuable supplement to traditional data sources for risk assessment,” said Andrew Jennings, FICO's chief analytics officer and head of FICO Labs. “By combining alternative data, advanced analytics and decision services, lenders can now make better credit decisions on people who don’t have a credit history, and who have therefore found it hard to obtain credit.”
FactorTrust has been aggregating data from financially underserved consumes since 2005 and has been working to challenge stereotypes about them, reporting, for example, that 32% of financially underserved consumers own their own homes.