The latest version of the VantageScore credit scoring model, VantageScore 3.0, created by the three major credit bureaus — Experian, Equifax and TransUnion — will raise the credit ratings of many Americans. It will also allow millions with limited credit histories access to loans they would previously not have qualified for.
VantageScore 3.0 factors in alternative data
If you have ever had a debt go to collection, it used to follow you around on your credit report for seven years, whether it was paid off or not, affecting your credit rating. However, under the scoring model employed by the new VantageScore 3.0, that ding will disappear if the debt has been paid in full.
By weighing alternative data, such as utility payments, public records of bankruptcies and the like, the VantageScore 3.0 forms a more accurate and rounded picture of a person’s ability to handle credit than previous models. According to John Ulzheimer, president of consumer education for SmartCredit.com, this will give as many as 30 million people access to the credit they have previously been denied.
It is a model more accurate in today’s American marketplace, said Ulzheimer. “This is like changing your speedometer from kilometers per hour to miles per hour,” he said. “It just makes more sense to American consumers and American lenders.”
Giving victims more credit
In the past, victims who suffered losses due to natural disasters had trouble regaining their credit worthiness, even if their borrowing habits were exemplary before the disaster. The new model will also address that by examining alternate indicators of credit standing beyond those used in the old models.
Ulzheimer, as quoted by CNN, said, “Consumers who have a zero-dollar balance on collections and no other negative information on their credit reports should see their VantageScore’s increase significantly.”
Used by more and more lenders
Not all lenders use VantageScore, however. FICO still remains the most common scoring model used by lenders. But VantageScore is gaining ground. According to CNN, it is used by seven out of the 10 top financial firms and by six of the ten largest credit card companies.
For the sake of clarity, VantageScore will also be altering its score range to fall more in line with the 300 to 850 range used by FICO. In the past, VantageScore used a scale from 501 to 990, which was confusing for consumers and lenders alike.
FICO considers similar move
Meanwhile, FICO announced on March 11 that it will also start examining ways to factor other kinds of data into its scoring model in order to provide scores for those denied them in the past.