Consumers know that credit scores can make or break their chances of getting loans for things they need like cars, homes and student loans. However, most people don’t know how credit scores are calculated or what they really mean. The mystery surrounding credit has been criticized a lot lately with the system being called unfair by some and biased by others.
Now, with so many people dissatisfied with the current system, a new credit score is inching its way into the market, promising consumers fairer reports and creditors more accurate pictures of a persons credit worthiness. The new system is called VantageScore and it’s a competitor to FICO. It’s being said that VantageScore has the ability to shake up the credit industry as it’s known.
Read on to discover 3 ways that VantageScore is changing credit.
No more 7-year penalty for collections
VantageScore 3.0 has been listening to consumers and it’s taking their complaints into account. For starters, it’s reevaluating the way that collection accounts are penalized, which is music to the ears of anyone who has a nuisance bill or medical bill wind up in collections. With the new model, paid collection accounts no longer hurt scores, getting rid of the 7-year penalty for paying late, as long as the account is eventually paid.
More new scores
VantageScore now claims to have the ability to provide credit scores for even more consumers – about 13 million more than the previous model. The previous model was impressive enough, claiming to service more than 14 million additional consumers over competitor models. All together, this gives VantageScore a total advantage of about 30 million consumers, which is more people than the population of Texas.
So what does this mean for consumers? Well, with the old FICO model, you needed to have at least 6 months of credit history and an account reported in the last 6 months to generate a score. VantageScore on the other hand requires just 1 month of history and any account reported in the last 2 years to get your score.
There’s more good news as well. VantageScore also says it will generate a credit score for consumers who use credit infrequently, but have had at least one transaction in the past 24 months or who have no open accounts because of bankruptcy or other financial downfalls. Customers with no recent activity on their reports or haven’t had any new reports in the past 3 to 4 years will also be eligible for a VantageScore when they weren’t eligible for a FICO score.
Take into account the bigger picture
VantageScore is also taking a more comprehensive approach to scoring credit. They are looking into how credit was handled in the past both before, during and after the recession. The credit environment has been so volatile and so many changes have been made that without looking at the bigger pictures, it’s impossible to get a clear idea of a persons creditworthiness.
Before anyone can decide for sure if VantageScore is better at predicting behaviors than other models, lenders are going to have to buy into the system. In the old school world of credit reporting where the good old boys have been the only game in town for decades, it may be difficult for a relative newcomer to break into the scene.
VantageScore is currently being tested by lenders and should be on the main market in mid 2013. Once it is fully released, the markets will ultimately decide its fate.