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Special Reports
Jumbo and Nonconforming Lending
VantageScore Study: More Qualify as Lower Risk
By Brad Finkelstein
A study conducted by Experian here found that, out of a sample of more than 40
million subprime consumers with mortgage tradelines, one-fifth - or approximately 20% - who were originally classified
as subprime using Experian's traditional credit risk score were re-classified into lower-risk categories using
VantageScore.
Experian and the two other major credit repositories, TransUnion and Equifax,
developed VantageScore, which competes with products created by the Fair Isaac Corp., used by all three repositories.
Experian claims VantageScore provides a more refined segmentation of consumers
in lower-score intervals, allowing lenders to identify pockets of relatively low-risk consumers within the subprime
category. Kerry Williams, group president, Credit Services & Decision Analytics at Experian, said, "By
providing a more holistic view and a finer definition of the data in the credit profile, VantageScore allows credit
grantors to make more precise and predictive lending decisions."
A white paper written by Experian says VantageScore increases the number of consumers
who are scoreable.
According to the study, "The analysis clearly identifies the opportunity
to score and subsequently lend to a larger consumer population while keeping risk to an acceptable level within
lenders' credit policies. "Furthermore, it should be noted that additional consumers are being scored in the
higher-score intervals, allowing for consumers who were initially considered high risk to be more accurately assessed
as more conventional borrowers."
It looked at a number of scoring bands and in each the number of individuals who
had a VantageScore in that band was greater than those who had an Experian Risk Score.
For example, in the band of consumers scoring over 710 but less than 840, the
number of people who had an Experian Risk Score was 35.65 million. For VantageScore, the number was 37.2, a lift
in the percentage scored of 4.3%.
As scores decreased, the lift in the percentage scored increased to the band of
people with a score of 620, which Experian identified as the subprime band. In that band, the lift was 11.4%.
Furthermore, the company said by using VantageScore, there is the opportunity
to separate out lower-risk subprime borrowers from higher-risk ones.
The white paper also takes the opportunity to make note of the fact with VantageScore,
authorized user trade lines are excluded from its algorithm. Authorized user trade lines are where consumers are
able to increase their credit score by being put on the credit card of a higher scoring person.
As a result, the paper said, lenders see the true credit risk of the prospect
and not anything from the person who that authorized user trade line is really associated with.
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