New Credit Scoring System: The three major credit bureaus, Transunion, Experian and Equifax, will begin using a common system to gauge whether a borrower is a good or bad credit risk.

Currently, all three major credit reporting agencies use their own formulas to equate a credit score. The result in that lenders and consumers often receive three different scores. Consumers have to collect all three scores from the credit bureaus to gain a complete profile of their credit report.

The new formula could also make it easier for young adults and other consumers with limited credit histories to get credit scores. In developing the model, the credit bureaus sought ways to assess such borrowers' credit risk more accurately.

The new VantageScore won't eliminate all discrepancies in credit scores. Credit scores are based on a number of factors, including bill-payment history, amount of debt owed, amount of credit available, and the length of time the consumer had a credit history. Credit card companies, mortgage lenders, banks and others use credit scores to evaluate risks in lending money or unsecured lines of credit.

In a few months, consumers will be able to buy their VantageScore from the three credit bureaus. But it's uncertain as to how well lenders and creditors will accept the new scoring system.

An overwhelming majority of large lenders use Fair Isaac's FICO score, which has become ingrained in lenders' computer systems and not likely to be replaced with VantageScore.

Credit bureau officials say VantageScore will be easier for consumers to understand because it will use letter grades to rate creditworthiness.

Borrowers with "A" credit will be eligible for the lowest interest rates; those with an "F" will pay high rates, or might even be unable to get credit. Scores will range from 501 to 990, compared with 350 to 850 for FICO scores.

That new system may confuse some consumers. For example, 800 is a "C" score under the VantageScore model, but using the FICO system an 800 score means a borrower has outstanding credit.

Experian says it will assign letter grades based upon the following numbered credit scores:
A - 901-990
B - 801-900
C - 701-800
D - 601-700
F - 501-600

Experian hopes that as consumers increase their awareness of the importance of credit scores and credit reporting, the consistency of VantageScore will provide the type of information they need to evaluate their credit standing and make sound financial decisions.

The new system may also help consumers understand what is necessary in order to improve credit scores or to fix credit report errors.

Order your credit report so you can check for and fix errors you may find. Each credit bureau; Equifax, Transunion and Experian, may report differently and have different scores. Use our free credit check to gauge how well you are currently managing your credit.