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VantageScore and Grades | The Costs of Change | 

New credit scoring guidelines are currently being advertised by the three credit bureaus, with the promising proposition that the new system will be easier to understand and reward the borrower with better scores. We are taking a brief look at the new model, what it means for you, the borrower, how it is calculated, what are the do's and dont's and whether this is all a good idea.

Who are the players in this game of score keeping?

The big three remain to be Equifax, TransUnion and Experian. Each one of these companies, which are all privately operated, are having a similar business model. To track your spending, evaluate your behavior and create a score based out of total amount owed vs. income vs. repay habits vs. timeliness and other factors, then apply a rather "foggy" formula, commonly as "Fair Isaac's" and assign you, the borrower, a credit score.

Lenders gauge your credit worthiness by your score and extend the total amount offered and an interest rate to you, based on your personal credit risk factor.

Of course, these companies are not smaritans either, but conduct their business with profit in mind. Everytime an inquiry reaches them, someone gets charged. Commonly, these charges are being rolled over to you, the borrower. At the end of the line, there's Fair Isaac, providing the formula to the big three and generating a healthy share of its overall revenue through it.

As with any other business, sharing a slice of the revenue cake with Fair Isaac is not in the best interest of the three major credit bureaus, hence "VantageScore" was recently announced. A blatant, and quite obvious attempt to eliminate Fair Isaac and retain their full revenue share, rather than a split.

VantageScore? Calculations? Different Ratings? What? Read the next chapters for more information.

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