Why The Credit Bureaus Are Entering The Credit Scoring Business
As you probably know, in 2006 the credit bureaus introduced a new credit score called the “Vantage Score”. For decades, the only “real” score in use has been the FICO score, and while FICO still holds the majority of the credit scoring market share, the bureaus have launched the Vantage Score as a competing score, presumably with the intention of changing that.
The Vantage score has been designed to compete directly with the FICO score by addressing issues that have always been associated with FICO scores, such as sometimes large score differences across bureaus.
The most obvious answer as to “why” the bureaus have chosen to launch the Vantage Score is “money”. Like all businesses, the credit bureaus are in business to make money, and another product means more potential for income.
According to Fair Isaac’s website, in 2007 the 100 billionth FICO Score was sold. With FICO holding around 74% of the market share in the credit scoring industry, even a small 5% or 6% of the market share (what the Vantage Score currently holds) could be considered substantial considering the massive amounts of credit scores being sold.
As more of the world becomes integrated into the credit system, these numbers will only go up.
Another less obvious reason that the credit bureaus are entering the credit scoring game is that of “control”.
Consider the following facts:
- The credit bureaus own and control the data that makes up your credit history. They make money from this data by selling it to lenders.
- “Bad credit” data is a hot market from which the credit bureaus make loads of cash.
- The credit bureaus (through the CDIA) control the credit reporting format called “METRO 2”. Through this format they exercise at least some control over how lenders report data.
- The credit bureaus also sell identity theft protection services such as credit monitoring. Credit monitoring is a way in which the bureaus can profit from the mere POTENTIAL of credit mistakes and/or identity theft.
- Through the use of e-Oscar and dispute automation, the bureaus have cut down drastically on the cost of processing disputes, and could possibly eventually PROFIT from disputes because of the per-dispute fees charged for use of the e-Oscar system.
When you look at all of these factors, the credit bureaus have a lot of control in a lot of areas.
They control the data. They control the format in which lenders report data. They control the automated system for processing disputes over that data.
As it is right now, the credit bureaus are in a position to profit in a big way from things like bad credit, incorrect negative reporting, and identity theft.
If the credit bureaus also controlled the credit scoring, it would become a “closed loop” system in which they not only PROFIT from bad credit, but essentially they would DECIDE who has it.
They would profit at every stop along the way in the process. From the time your identity is stolen, from the bad credit data produced by that, from the countless disputes that you submit in an attempt to fix it, to the times you request your score to see if your credit repair attempts are paying off… the credit bureaus would be making money at every step.
What’s the next step? Owning the law firm that you use to sue them?
Controlling the scoring algorithm would mean more control over who has “good credit” versus “bad credit”. When they are clearly in a position to profit from bad credit, that creates a considerable conflict of interest.
And the more money the credit bureaus are able to make in their “closed loop” system, the less likely they are to care about what your credit report looks like and whether or not it is actually accurate.
The credit bureaus are already notorious for ignoring disputes and giving consumers the run around. The system is already heavily slanted in favor of the bureaus and the banks.
Would giving them more control help that?
Of course not.
But that is where it appears that things are heading. Only time will tell what the true consequences are. For more information about fixing your credit please visit us at www.creditindy.com or call today for your FREE CONSULTATION at 317.202.1297.