According to court filings by Fair Isaac, the creator of the FICO score (the dominant and most well-known consumer credit score in the United States), a “Credit Score” is a representation of an individual consumer’s financial creditworthiness that quantifies the risk that a consumer will fail to repay a loan or other credit obligation. “Credit Scoring” is the process by which an algorithm, or set of algorithms is applied to Aggregated Credit Data to generate a Credit Score.
“Aggregated Credit Data” is the historical records of an individual consumer’s borrowing and repayment as reported to credit reporting agencies by multiple lenders and servicers of loans. “Aggregated Credit Data” is separately compiled, reported, and sold by Equifax, Experian, and Trans Union (collectively, the "Consumer Reporting Agencies"), with such activity representing the core of their respective businesses. Credit reporting in the United States is entirely voluntary and, therefore, the Consumer Reporting Agencies depend on major financial institutions, other lenders, and merchants to provide data.
In most cases Fair Isaac itself does not calculate or provide FICO scores directly to the lenders. Rather, Fair Isaac licenses its algorithms to the Consumer Reporting Agencies, which in turn apply their data to the algorithm to generate and sell scores (usually with credit reports) to lenders.
VantageScore is a joint venture formed by Equifax, Experian, and Trans Union to develop a credit scoring algorithm to compete with the dominant FICO score. “VantageScore” scores became commercially available on March 14, 2006.
Like Fair Isaac, VantageScore owns a scoring algorithm that is licensed to the Consumer Reporting Agencies for sale. Equifax, Experian, and Trans Union compete in marketing VantageScore credit scores, which are calculated by applying the VantageScore algorithm to their individual Aggregated Credit Data. The Consumer Reporting Agencies do not share Consumer credit information with one another in calculating their Credit Scores.
Fair Issac has long owned algorithms that run on each Consumer Reporting Agency's credit data. In order to develop algorithms effective across all the Consumer Reporting Agency data sets, Fair Isaac has “collaborated closely” with each Consumer Reporting Agency and thus become familiar with the unique organization and attributes of each Consumer Reporting Agency's data.
Each Consumer Reporting Agency has developed its own proprietary scoring algorithms and attempted to sell them in competition with the FICO score; but each Consumer Reporting Agency's proprietary algorithms were developed using only that Consumer Reporting Agency's data set and thus are most effective on that Consumer Reporting Agency's data, not across the data of all Consumer Reporting Agencies.
Like Fair Isaac, VantageScore has had access to all three Consumer Reporting Agencies’ data, and thus the VantageScore algorithm can be used across the data sets of all three Consumer Reporting Agencies. Since, the individual Consumer Reporting Agencies do not have access to the others’ data sets outside the joint venture, none of the Consumer Reporting Agencies unilaterally could have developed an all-purpose scoring algorithm based on such access. The VantageScore algorithm thus represents the first serious competition to Fair Isaac’s dominant scoring system.