We give thanks for a year of milestones
It is my great pleasure to share the results of our annual study of the national credit reporting companies (CRCs) regarding the adoption of the VantageScore model. In the 12-month period from July 1, 2014 to June 30, 2015, more than six billion VantageScore credit scores were used by over 2,000 lenders and other industry participants, including seven of the 10 largest financial institutions.
Usage doubled over the previous 12-month period, in 2013-14, when approximately three billion VantageScore credit scores were used (and which, in turn, represented a sixfold increase over the volume for the comparable 12-month period in 2012-13). You may recall we started the company nine years ago in the face of a serious recession—which means our models have been recession-tested.
VantageScore continues to provide value across the credit ecosystem: for lenders and consumers, ratings agencies, investors, researchers, government agencies, and others. This was underscored earlier in 2015 by another acceptance milestone, when Standard & Poor’s and Kroll, separately, rated pools of consumer loans underwritten using VantageScore without bias. This accomplishment should translate to even more growth next year as lenders can now feel comfortable pooling and securitizing loans originated using the VantageScore model in order to fund new loan issuance.
At times like these, it might be customary to celebrate and spike the football, but instead I wish to deliver a simple yet critical message: Lenders use many different credit scoring models for many different functions and we need to be honest with consumers about that.
For example, after credit card issuers receive a consumer’s loan application, most of those issuers use their own custom scoring model to determine the applicant’s credit risk. They have done so for many years.
Credit card issuers might also use a VantageScore credit score or a FICO credit score for other processes that require credit scores, such as account management or loss mitigation, even though the issuer’s original decision to extend credit had been made using the credit card issuer’s own proprietary scoring model.
I bring this up because, increasingly, consumers are being told “the FICO credit scoring model” is the only model used by nearly every lender, for nearly every decision, and that just isn’t true. There are more than 60 FICO models, three VantageScore models, and many other models now in use by thousands of different lenders, and it’s anyone’s guess which version any lender is using at any particular point in time to generate the scores used in its many processes. Furthermore, there’s virtually no way to guarantee that any of those scores will be an exact match for score that the consumer purchases online, receives on a monthly card statement, or obtains through a free or “freemium” website.
Credit scoring can be difficult enough for consumers to understand without smoke screens. Almost all the data we’ve seen demonstrates that only a small number of consumers have deep knowledge and an understanding about any particular credit scoring model, whether it’s FICO or VantageScore.
So let’s focus on what matters: Receiving a credit score can and should help a consumer understand the links between his or her credit behaviors and the contents of their credit reports from the three CRCs. Educating consumers about those links, and the way they can use their scores to measure improvement in their credit habits, is far more important than making them obsess over a particular three-digit credit score brand.
Finally, as we approach the Thanksgiving holiday, a hearty “thank you” to all the lending institutions and other users of credit scores that have adopted VantageScore, and to all who have supported competition in the credit scoring market. We look forward to another year of growth.