Q&A with VantageScore Solutions, LLC: Implementing a New Credit Score Model in Lender Strategies

A Q&A was conducted with VantageScore Solutions, LLC, in order to gain a better understanding of the implementation of a new credit score model in lender strategies.

Q: Why is it important for a lender to implement a new credit score model in its strategies?

A: Similar to other technologies, credit scoring models evolve and improve as competition feeds innovation. In response to industry demands for credit and risk tools built for a post-recessionary economy, VantageScore Solutions, LLC, developed and released VantageScore 3.0. The model was developed on 45 million consumer credit files, representative of the 2009-12 time frame and uses more granular data than prior VantageScore credit score models.

In validations, VantageScore 3.0 outperforms all other versions of VantageScore and proprietary credit reporting companies’ (CRCs’) generic credit score models. Unique to VantageScore, the model is identical at each of the three main CRCs — TransUnion, Experian and Equifax. Consequently, consumer scores are more consistent across all three CRCs, with 90% receiving scores within a 40-point range simultaneously across the three CRCs. Additionally, over 30 million consumers are now scored who are typically un-scoreable by conventional scoring models.

To take advantage of the strengths of VantageScore 3.0, lenders should conduct a model conversion process to determine how to incorporate the new score into their credit strategies. Such model conversion processes cover all credit scoring models, such as converting VantageScore 2.0 to VantageScore 3.0.

Q: What are the main steps for an effective conversion?

A: The conversion process can be generally categorized into three levels, ranging from “Plug & Play” (i.e., simply replace the OldScores with the NewScores) to the most complex process, requiring a full re-design and re-optimization of the strategy. Selecting the right process is determined by the degree of similarity in default rate and population distributions when the population is scored by both OldScore and NewScore. For any of the three conversion processes, four component steps must be considered:

 Analysis to determine the NewScore cutoff that meets the desired default rate or population

 Design revisions to the strategy based on the NewScore information

 Testing the strategy using the new scores

 Reporting to monitor the strategy performance under the NewScore

As the conversion process becomes more complex, each of the four steps requires more intense focus.

Q: Was the VantageScore 3.0 model designed to be more easily implemented?

The VantageScore 3.0 model includes a variety of features that make it easier for lenders to implement. Firstly, VantageScore 3.0 credit scores now range from 300 to 850, a numerical scale more familiar to lenders and consumers. The VantageScore 3.0 model is a single credit scoring model that can be deployed at all three CRCs to enhance risk alignment. Not only does this approach facilitate more consistent scoring across all CRCs, it enhances the level of confidence across lenders of all types.

Both lenders and consumers will appreciate that the VantageScore 3.0 model has fewer reason codes. The codes were written in plain English to help consumers better understand how data in their credit files impacts their credit scores. Better still, VantageScore Solutions created a new website, ReasonCode.org, for consumers who want to learn more about the reason codes they receive as a result of score disclosure and adverse action notices.

ReasonCode.org also provides suggestions on how consumers can improve their credit scores over time. Lenders can use this information as a value-added benefit to their customers.

Q: In summary, what will readers of the whitepaper, “Implementing a New Credit Score in Lender Strategies,” learn about?

A: Generic risk scores have been deeply embedded within lending processes for decades. Perhaps to the detriment of the business, this deep entrenchment has hindered the business’ ability to leverage and deploy state-of-the-art risk management tools quickly and flexibly. As a result, lending strategies are often using scores that can be more than 10 years old and that are certainly less than optimal for today’s business dynamics.

The paper intends to provide lenders with the tools and clarity for effectively incorporating new credit scoring models into their strategies, thereby enabling them to achieve their credit and risk management goals.