1. The VantageScore Credit Scoring Model: An Overview

2. Today…. 10 years on…. Here to stay MODEL FEATURES Universe Expansion
Consistency
Free Credit Scores
National Consumer Assistance Plan (NCAP)
VantageScore 4.0 coming soon
CONSUMER EDUCATION

3. The credit industry follows the leader: VantageScore.
From 1987, while the first generic credit scoring models were introduced, through 2005, the credit scoring industry was dominated by a single company with little incentive to innovate. The arrival of VantageScore Solutions in 2006 brought competition between developers that has fueled innovation and benefitted both lenders and consumers.
VantageScore 3.0
Scores 98% of all consumers with credit file; scoring million more consumers than conventional models.
Enhances originations performance*
Ignores paid medical collections
Adopts score range
Simplifies reason code language
Introduces ReasonCode.org to aid consumer understanding
VantageScore 2.0
Blends data from 2x windows
Develop on 45 million credit files (roughly 2x previous) for greater predictiveness
More than 8 billion VantageScore credit scores were used in , nearly a 40% increase in annual usage.
VantageScore 1.0
Provides new approach to consistency: characteristic leveling and synchronized development window
Scores 15 million more consumers
Introduces proportional performance definition
Incorporates rent, telco and utility data
More than 2,400 lenders including 20 of the top 25 financial institutions used VantageScore credit scores in
2016
FICO 09
Adopts synchronized development window
Incorporates rent data
Ignores paid medical collections
Enhances originations performance*
FICO 08
Ignores small dollar collection accounts
Adopts proportional performance definition
FICO 04
Is still mandated by GSEs and FHA today
Some generic models are used both to originate new loans and to manage existing accounts. VantageScore 3.0, and later FICO 9, made changes to attribute specifications to enhance each model’s predictiveness for the origination of new loans.
© 2017 VantageScore Solutions, LLC. All Rights Reserved.

4. Use of VantageScore by has increased rapidly outside the mortgage industry4
Usage figures are compiled annually via an outside study of the three national credit reporting companies. Data reflects usage from July 1 through June 30 for each 12-month period.

5. VantageScore 3.0
Model Features

6. VantageScore Models VantageScore 3.0 Launched March 2013
Developed on 2009/11 and 2010/12 timeframes
Uses latest version of credit file information and AU data
Scores ~30-35 million previously un-scored consumers, ~98% of the credit bureau database
Identical algorithm at all Credit Bureaus
Score Range:
Version 1.0
Launched 2006
Developed on timeframe
VS 1.0 With Auth User (AU) option
Scores ~15-20 million previously un-scored consumers
Identical algorithm at all Credit Bureaus
Score Range:
Version 2.0
Launched 2012
Developed on 2007/9 and 2008/10 timeframes
Incorporates AU data

7. Universe Expansion 316 million 227 million 180 million 220 million
< 18 years
35-40mm new-scoring consumers
“Credit Invisible”
No credit file
Inquiry only
Unscoreable
316 million
227 million
180 million
220 million
Conventionally Scoreable
Aggregate US Population
Credit-Eligible Universe
Scoreable w/ VantageScore 3.0

8. Universe Expansion Millions of new-scoring consumers meet current HUD & GSE credit score cut
New Scoring Consumer Volumes
: 21 million
580+ : 13 million
580–620 : 6 million
As of December, 2014
7.6mm new-scoring consumers 620+

9. Universe Expansion New-scoring population includes millions of minorities
Mapped credit files to Census data at the Zip-code level to estimate minorities within new-scoring population
e.g., up to 23% of population is “unscoreable” using older models in predominantly African-American areas
Opportunity for lenders to expand applicant pool, serve more minorities
New-Scoring
All Scores
Score 620+
Total
35 million
7.6 million
African and Hispanic
9.5 million
2.4 million
Asian
1.4 million
<1 million
Native American

10. Score Consistency VantageScore models produce more consistent results across the credit bureaus
There are four reasons why a scoring model will generate different scores from one credit bureau to the next:
Reason
Who & Why
Remedy
1. Credit information is not reported to all credit bureaus
Many regional and community lenders do not report to all bureaus
None
2. Credit information is reported to credit bureaus at different times
Most lenders report to different bureaus at different times during calendar month
3. Variances in how credit bureaus define and store information
Bureau data management strategies evolve based on their unique business model
Data definitions must be aligned and standardized (characteristic leveling)
4. Scoring models developed on different information and therefore have different algorithms
Developers must use the bureau-specific data to maximize performance for that bureau
With leveled characteristics, the identical algorithm can be installed at each bureau
Remedy is unique to VantageScore

11. Consumer friendly benefits
Natural disaster
Temporary exclusion of trade-level delinquent behavior while retaining positive payment data.
Paid-off mortgages
High credit quality consumers recognized for successfully paid-off behavior.
Paid third-party collection accounts
Paid collections with third-party collection agencies not considered in VantageScore 3.0
Only agency collection accounts that are unpaid are a factor impacting a consumer’s score
All industries
Includes paid medical collections
All balance amounts
Medical debt not considered when provided by a medical facility

12. Consumer Transparency ReasonCode.Org & online education resources
Reason codes
Consumer-friendly language
Reasoncode.org
Fewer than 80 numeric codes
Option to use POSITIVE reason codes
YourVantageScore.com
Overview of model and primer
credit reporting/scoring
ecosystem
Infographics explaining model
influencers

13. The Bottom-line…. The Bottom-line Predictive performance
Superior performance, annual validation
Universe expansion
30-35 million incremental consumers with credit files are scored
Consistency
Identical algorithm at all CRCs
Regulatory awareness
Algorithm transparency. Field teams trained
Ratings agency awareness
VS 3.0 accepted in top rated securitizations
GSE acceptance
Ongoing, expect decision in 2017
Consumer education
Superior tools e.g., score simulator, reasoncode.org, VSS resources
Bold Italics - superior capability or unique

14. Fast Facts on all those free scores
Providing consumers with scores, free or for purchase, helps them understand their creditworthiness, but consumers should not be led to believe that these scores are necessarily the same ones lenders will use to evaluate future loan applications.
It is a disservice to suggest to consumers that only one credit score matters.
All generic credit scores reflect a consumer’s credit report, which in turn, reflect their credit behaviors. Ultimately, consumers should focus on practicing positive credit behaviors in order to improve their credit scores.
Consumers actually get it! Across the board, consumers take a positive view toward having multiple credit scores, from different models. In fact, a study commissioned by VantageScore found that only four percent of U.S. consumers who have been scored by more than one credit scoring model viewed having multiple scores negatively, while over 55 percent characterized the trend as positive.

15. Sources of Free VantageScore credit scores
Direct-to-Consumer/Non Lenders:
Lenders:
CompareCards.com
Alliant Credit Union
Credit Karma
Avant
Credit Sesame
Capital One
Credit.com
NHCash.com
JP Morgan Chase
Creditera
Mosaic
Fingerhut
OneMain/Springleaf Financial
iPreCheck
TD Bank
LendingTree
University of Wisconsin Credit Union (UWCU)
Lifelock
USAA
Money Lion
US Bank
My.CreditCards.com
myBankrate
NerdWallet.com
Quizzle
Qup/QL Credit
ReadyForZero.com
Truelink
WalletHub
Wisepiggy.com

16. National Consumer Assistance Plan Enhancing Credit Report Accuracy
Highlights….
Require all data furnishers to use the most current reporting format.
Monitor data furnishers for adherence to the announced reporting requirements and take corrective actions against data furnishers for noncompliance.
Medical Debt
Prohibit medical debts from being reported on credit reports until after a 180 day waiting period to allow insurance payments to be applied.
Remove from credit reports any previously reported medical collections that have been paid or are being paid by insurance.
Collections
Require debt collectors to include original creditor information with each account being reported for collection.
Require debt collectors to regularly update the status of unpaid debts and remove debts no longer being pursued for collection.
Data removal under consideration....
Removal of civil judgments
Reduction in tax liens
Removal of medical collections less than 180 days old
Removal of collection accounts with insufficient information or paid-off.
Finalized impacts expected Q2/3, 2017

17. Why NCAP Matters
2016 VantageScore study: If ALL liens and judgments are removed from consumer credit files, 11 percent of the sample population had tax liens or civil judgments removed.
Approximately 8 percent of the sample received an average score increase of 11 points when all tax liens and civil judgments were removed. For those with scores below 600, the score increase may be much more significant.
Consumer scores should be expected to change because of data suppression as a result of NCAP.
Despite changes in file composition for some consumers, VantageScore 3.0 still effectively rank orders.
Lenders, particularly mortgage lenders who have repurchase risk, have understandable concerns because some consumers at the margins of eligibility cut-offs may qualify.

18. How VantageScore 4.0 Addresses Lender Concerns
VantageScore study: Consumers scored using NCAP-aligned models who exceeded the score cut-off reflected a more stable product mix and demonstrated superior credit management skills compared with those scored using older models that incorporate NCAP-related data.
Despite current models continued performance, newer models that align with NCAP may provide greater stability because they incorporate behaviors more closely related to the consumer’s immediate behavior.
Other behaviors, particularly forward looking behaviors, can be used to compensate for the loss in predictive insight obtained from NCAP data. Newer models may
provide greater stability because they incorporate
behaviors more closely related to the consumer’s
current and potential performance.

19. Introducing VantageScore 4.0 – Features
Trended attributes
Machine learning innovations
‘NCAP’-aligned
Refreshed on timeframe
Consistent attributes & algorithm at each of the CRCs
Reasoncode.org
Positive and negative reason codes

20. Consumer Education

21. VantageScore 3.0 characteristics contributions

22. Improving a score and avoiding score drops
Action
Lender interpretation
Score impact
Low risk
The impact on credit scores from each single credit activity appearing in your credit files varies, but there are generally things that have good or bad consequences
Pays bill on time
Wisely handling debt
Improvement
Low credit utilization
Sufficient access to credit, unlikely to need additional funds
Mature accounts
Experienced credit user
Uses diverse range of loan products
Experience with different types of repayment requirements
Inquiry about new loan
Why the need for credit – exposure or normal expansion?
Small drop
Opens a new loan
New accounts
Will consumer effectively manage new credit?
Maxes out credit card (high utilization)
Tipping point: potential for significant exposure
Drop
Pays late – first time
Pays multiple loans late
All credit at risk
Larger drop
Miss multiple payments on a loan (3 or more)
Charge off
Default
Major score drop
Foreclosure
Bankruptcy
Maximum score drop, extended time impact
High risk

23. Impact from a negative event in a credit file diminishes with time
Score recovery time
Max Impact month months months year years years
-10%
-30%
-50%
-70%
-90%
Impact to credit score
Obtaining new credit
Closing an account
Maxing out credit card
Missed payment, default
Bankruptcy

24. Tips for score improvement
Keep all accounts current
If one or more payments have been missed recently, bring all accounts current, then ensure payments are made on time for at least a year, preferably 18 months.
Substantially reduce the total credit card line usage by reducing the balances on credit cards
If the balance amount on one or more credit cards is greater than 70% of the full credit line for that card, reduce balances to less than 30% and maintain that level for at least six months.
Make additional mortgage payments to reduce the remaining loan amount
Do not make inquiries for new credit or open any new accounts.
If you must open a new account, rate shop within a two-week window to minimize the number of inquiries in your credit file.
Don’t close unused credit card accounts – particularly if the account is multiple years old
Review your credit report for errors. Contact the bureaus and creditors to correct mistakes

25. CreditScore Knowledge Survey and CreditScoreQuiz.org
Partnership with Consumer Federation of America includes an annual national survey of adults to capture credit scoring knowledge. Results are made public each spring.
A companion interactive website allows consumers to test their own knowledge on credit scores through an online quiz. Consumers on average score is 77 out of 110.
The site is a fun tool that delivers answers to each question with explanations so that consumers can inform themselves about the latest credit score information.
Useful resources and real-time nationwide results also are provided.
Nearly 40,000 people have completed the quiz