Tuesday, September 23, 2008

Fitch Becomes First Rating Agency to Accept Mortgage Loans Based on VantageScore, Posted by Robert Paisola

Fitch Becomes First Rating Agency to Accept Mortgage Loans Based on VantageScore

Last update: 10:08 a.m. EDT Sept. 22, 2008

NEW YORK, Sep 22, 2008 (BUSINESS WIRE) -- Fitch Ratings announced today that it is the first rating agency with the capability to evaluate and assign ratings to mortgage loans based on VantageScore, the generic credit scoring model jointly developed by the three national credit reporting companies (Equifax, Experian, and TransUnion).
According to testing done by Fitch, VantageScore provides highly predictive evaluations of consumer creditworthiness. The three national credit reporting companies apply an identical algorithm to data, creating a more consistent score. The model can also score consumers with limited credit histories.
'The mortgage crisis has not only shown that a multitude of factors influence the performance of high risk loans, but has also underscored the need for an improved generic consumer scoring model against which mortgage lenders can more reliably make their loans,' said Group Managing Director and U.S. RMBS group head Huxley Somerville. 'Built using data that includes the dramatic rise in consumer indebtedness in recent years and regularly revalidated to ensure the model's continued predictiveness, VantageScore has shown to be more accurate than FICO because it excludes the use of authorized trade lines.'
Fitch has fully incorporated VantageScore into ResiLogic 2.1, its flagship quantitative model that provides credit risk analysis at the individual loan and pool level for residential mortgage loans. ResiLogic was recently updated to include national economic and regional performance factors, loan seasoning, and adjustments for high risk loan underwriting and mortgage insurance.
About Fitch Ratings:
Fitch Ratings is a global rating agency dedicated to providing the world's markets with independent, timely and prospective credit opinions. Fitch Ratings is headquartered in New York and London and is part of the Fitch Group, a majority-owned subsidiary of Fimalac, S.A., headquartered in Paris, France. For additional information, visit www.fitchratings.com or www.fimalac.com.
About VantageScore Solutions:
Stamford,CT-based VantageScore Solutions, LLC ( www.vantagescore.com) is an independently managed company that holds the intellectual property rights to VantageScore--a new generic scoring model introduced in March 2006. Created by America's three major credit reporting companies (CRCs) - Equifax, Experian and TransUnion--VantageScore's highly predictive model uses an innovative, patent-pending scoring methodology to provide lenders with a consistent interpretation of consumer credit files across all three major credit reporting companies (CRCs) and the ability to score more people.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
SOURCE: Fitch Ratings
Fitch Ratings, New York
Huxley Somerville, 212-908-0381
Media Relations:
Sandro Scenga, 212-908-0278

Copyright Business Wire 2008

Sunday, April 20, 2008

Insurers' use of credit scoring is here to stay, Posted by Robert Paisola

Mr. Robert  Paisola  Motivational Speaker on THE SECRET

Q I just received my FICO score and VantageScore ranking. My FICO score was 5 points less than my VantageScore ranking, yet FICO gave me a "good" rating and Vantage gave a "nonprime" grade D scoring. My vehicle insurance went up because of this score. Is there any way to dispute this?

A Don't I wish you could dispute your insurer's decision!

My insurer did the same thing to me while insisting I was still saving more money on my insurance than if the company didn't use scoring. Go figure.

What's really interesting about your situation is the big difference in how FICO and VantageScore rated your scores.

First, let me talk about my actuarial friends.

Insurers have the right in most states to view your credit history and include what is found there in their calculations of your personal risk.

Why? Well, insurers say — and our fearless state representatives agree — there is a correlation between how a person handles credit and the likelihood of filing an insurance claim.

So to help everyone manage the difficult situation of who gets charged what rates, or gets coverage at all, insurers rely on a scientific model.

The bottom line of the situation is that insurance credit scoring is here to stay.
You can ask the insurer's customer service why your rates went up, but you'd probably have more luck asking my cat Stinky for answers. Each company has its own scoring models and considers them to be trade secrets.

However, you can get a version of your generic insurance score from TrueCredit. You will receive an auto and homeowner's coverage score along with advice for improving your score. Insurers may not look at the information contained in your credit reports and scores in the same way that a potential lender would. For example, an insurer may be more interested in your payment history than in how much you owe.

Your FICO and VantageScore credit scores are based on the information contained in your credit reports at each of the three major credit bureaus — Experian, Equifax and TransUnion.

Because each bureau has different data in its files about you, you will have a different score depending on which type of data they use.

Although you cannot dispute your scores, you can check your credit reports to assure that the information used to calculate those scores is correct. If you find inaccurate or out-of-date information, you should file a dispute with the bureau that reported it.

VantageScore is a relative newcomer to the credit-scoring industry. It was developed by the bureaus, and they claim the VantageScore ranking is more up-to-date than a FICO score. Different math and weightings are used to figure your score, and each has its own range of scores.

FICO scores go from 350 to 850, while VantageScores range from 501 to 990 and also include a letter grade.

Once you have your credit reports in the best shape possible, your only other alternative for saving money on your insurance premiums is to shop around for different insurance carriers.

Because insurers each use their own scoring systems, you could have a much better score with carrier A than you do with carrier B, and your premium will reflect that.

Friday, March 07, 2008

FICO 08: The New FICO Credit Score Model, posted by Robert Paisola

FICO 08: The New FICO Credit Score Model
Fair Isaac Tweaks the FICO Formula
Published on: Friday, March 07, 2008
Written by: Brad Zimmerman

It’s been almost a decade since the Fair Isaac Corporation changed the formula to their popular and widely used FICO credit score model, and apparently a decade is quite long enough. Fair Isaac is preparing to roll out its new credit scoring formula—aptly titled FICO 08—this spring, an accelerated date, in order to help lenders improve their risk management in the wake of rising loan defaults.

Fair Isaac predicts the new formula will reduce default rates on consumer credit between 5 percent and 15 percent, according to the Wall Street Journal. Lenders have been increasingly needy of a more accurate measurement of credit risk as defaults continue to build up because of subprime mortgages and falling housing prices.

“Higher-risk borrowers may find it tougher to get credit, while those with less-risky profiles—though they may have gotten approved for credit accounts in the past—will start to get better deals from lenders,” according to the Wall Street Journal.

The FICO scoring system, which is used by 90 percent of the country’s 100 largest banks, won’t be tampering with the scoring range of 350 to 800, or with things such as timely payments, length of credit history and amount of debt, among other things. There are some changes investors should be aware of, however.

Most notably, FICO 08 will eliminate authorized users; see our previous article Credit Boom Turned Credit Bust for more information. While the old system would allow spouses and children of primary card-holders to become authorized users and build their own credit histories, lenders felt the practice undermined their attempts to contain credit risk, according to Mortgage News Daily.

The move was largely in response to the creation of credit-repair websites that would allow consumers with bad credit to become authorized users on the account of a stranger with a good credit history. It will, however, hurt those spouses and children of card-holders who legitimately used the practice to build their own credit.

Additionally, FICO 08 will give more credit points to consumers who maintain multiple lines of credit, such as a credit card, auto loan and home loan, while penalizing more heavily those people who use a lot of their available credit, according to the Wall Street Journal.

The new system will also go easier on consumers with an occasional slip-up in payment and come down much harder on those with multiple credit infractions. The new system is intended to be more precise in determining good and bad risk borrowers, especially among subprime borrowers and those seeking or just establishing credit.

Although it seems like the FICO 08 scoring system will be much tougher, the average credit-holder may be pleasantly surprised.

“Overall, more consumers will see their FICO scores go up slightly than will see their scores drop,” Tom Quinn, vice president of global scoring solutions for Fair Isaac, said in a press release.

Investors should take note of Fair Isaac’s changes in the scoring system and expect to see it go into effect in the coming months as the major credit reporting agencies adopt it. Fair Isaac has already given FICO 08 to Experian and TransUnion plans to implement the new system sometime in the second quarter of this year.

The third major credit reporting agency, Equifax, is in the midst of a lawsuit with Fair Isaac about competition from a new system, VantageScore, and plans not to move forward with FICO 08 at this point in time, according to the Wall Street Journal. Fair Isaac maintains that it will distribute the formula to all three agencies.