New and potentially confusing credit score and credit report changes could make it easier for you to get credit - or more difficult - depending upon how your credit behavior adds up.
VantageScore Solutions, a FICO counterpart, says its new VantageScore 3.0 can generate a score for 27 to 30 million consumers previously unable to, well, score a credit score.
Without getting into the algorithms of the new score's "transformative predictive lift" and "simplified reason code statements," the new VantageScore, ranges from 300 to 850 (as does FICO):
- Factors in atypical credit data such as collections, public records, and inquiries when more traditional data (like mortgage, credit card and car loan payments) is not present.
- Uses traditional consumer credit data that is older than 24 months, a plus for infrequent credit users with little used, but old credit.
- Using rent payments, utility and telecom data when available on a consumer's credit file. However, if a renter has a legitimate beef with the landlord and withholds rent, there goes the credit score.
- Comes with a new scorecard to generate a credit score for those with little to no recent credit activity.
Of course, if you are a slouch at paying bills or debts in any of these areas, 3.0 won't amount to a hill of beans in terms of improving your credit score.
The new score could also mean consumers will have to keep tabs on more of their bills, in terms of how paying them will impact their credit score.
More "granular" data
The new scoring system may be a better deal for creditors who, after losing many customers to the Great Recession, would like a low-risk avenue where they can park more credit cards in the hands of worthy consumers.
"Today's competitive lending environment dictates that lenders need access to as many creditworthy consumers as possible within their target universe, demanding the highest level of predictive performance from the credit scoring models they use," said Barrett Burns, president and CEO of VantageScore Solutions.
VantageScore says it's also using more "granular" data collected from the major three credit bureaus - Equifax, Experian and TransUnion - to weed out specifics.
The effort includes:
- Separating first mortgage data, from other mortgage related transactions say, home equity loans.
- Separating installment loan accounts, including student loans, car loans, signature loans and others.
- Taking into account more specific measurements of delinquency and default habits to obtain better
insight on a consumer's payment behaviors over time.
Learn more about the new score from VantageScore's new web site ReasonCode.org, which claims to offer more details in plain English.
Let's hope so.
AARP insight
AARP's financial services says the new score and changes in other scoring systems comes at a time when the feds are also rolling out a mixed bag of new regulations to reign in credit agencies and creditors.
One new provision of the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act) makes if difficult for certain otherwise creditworthy people to obtain credit because they don't have their own income independent of their spouse.
The rule targeted younger borrowers but inadvertently has impacted others who are perfectly creditworthy, including non-working spouses, ex-spouses, widows and people with limited incomes.
The problem has gotten the attention of the Consumer Financial Protection Bureau and it plans to adjust the rule.
AARP also says, along with scoring systems putting rental payments under the microscope, some systems are also tossing in those horrid, money sucking payday loans - a tool of credit sharks, large and small.
While proponents say including new real estate data to generate credit scores can help extend credit to certain non-bank consumers with little or no credit report history, critics say those most likely to be hurt by the new scoring stew are those who already get the short end of the stick - low- and middle-income consumers.
Published: April 12, 2013
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