Credit Score Technology Boosts Prospects

Subprime mortgage lending grew 60 percent from the beginning of 2003 to the end of 2006, according to the study by Experian — one of the creators of VantageScore. Subprime borrowers represent those with lowest 20 percent of credit scores.

Among nonprime borrowers, a segment exists that actually represent low risk while another segment includes those who mask their bad credit by becoming an authorized user on someone else’s trade line — artificially boosting their credit scores.

“This aspect of traditional credit risk scores is creating a cottage industry on the Internet and an opportunity for ‘would-be’ credit gamers, increasing the risk in the lending portfolios of financial institutions,” Experian said. “While this practice is not illegal, its manipulative and exploitive undertones are concerning and may be best categorized as abuse that borderlines on fraudulent behavior.”

The Costa Mesa, Calif.-based credit agency said authorized user accounts are excluded from the algorithms used in calculating the VantageScore — which was jointly developed by Experian, Equifax and TransUnion last year.

The VantageScore reportedly boosts by 11 percent the pool of qualified subprime prospects who may have previously been unscoreable — typically between five and 10 percent of the overall population and 20 percent of the subprime population — while better identifying higher risk borrowers.

“Approximately 20 percent of those consumers originally classified as subprime using Experian’s traditionally developed credit risk score now are classified into lower-risk categories using VantageScore,” the report stated.

Experian said it studied a random sample from its own database of 40 million subprime consumers with mortgage tradelines.

“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,” Experian executive Kerry Williams said in an announcement.

Sam Garcia worked in mortgage lending for twenty years prior to becoming publisher of MortgageDaily.com.

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