The Foreclosure Report

New Model Figures Out 'Who To Stay Away From'

A report on the latest credit scoring model. "It's the multibillion-dollar question that every credit-card company, auto lender, and mortgage outfit wants to know: If they lend you money, will you pay it back?On Mar. 14, the Big Three credit-reporting companies unveiled what had been a tightly guarded secret plan to knock Fair Isaac from its throne and become the dominant provider of credit scores to lenders."

"Creditworthy people who were unfairly lumped in with deadbeats are more likely to get credit now, and at lower rates. Of course, poor risks who were accidentally given loans are more likely to be rejected if accuracy improves."

"VantageScore was announced jointly by the top credit-reporting giants: Equifax, Experian, and TransUnion. The companies say that using VantageScore reduces by about 30% the wide 'dispersion' in scores that the different bureaus generate. On the not-so-bright side, that means that 70% of the dispersion remains. That's because VantageScore can't overcome the problem of incomplete or inaccurate information."

"Its authors say their tests show it makes better predictions about loan applicants who have 'thin files,' such as young people with no credit history. It should also help lenders better segment less creditworthy 'subprime' borrowers, so they can figure out which ones to market to and which to stay away from, says Dana Wiklund, senior vice-president for predictive sciences at Equifax."

An alert reader caught this from the VantageScore website. "The VantageScore credit model was developed from a national sample of approximately 15 million anonymous consumer credit profiles pulled from across the three major credit reporting companies. Advanced segmentation techniques..results in a stronger separation of good and bad accounts and the ability to classify more bad accounts into the worst-scoring ranges."

posted by Ben Jones @ 1:51 PM