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How The Latest Credit Scoring Model Could Affect Your Credit Score

The major competitor to the FICO credit score that most lenders use, VantageScore, is releasing its newest credit score tracker, VantageScore (VS) 4.0 later this fall.

VantageScore 4.0: What is Different?

Change 1: VS Takes the National Consumer Assistance Plan (NCAP) into Account-->
For the first time ever, VantageScore is going to start using the National Consumer Assistance Plan for part of its score-formulation process. NCAP is a program that was launched in early 2015 by the three major credit reporting agencies as an attempt to enhance the accuracy and reliability of credit report information.

This means that, first, VantageScore will begin to differentiate between different types of collections accounts in its credit review because different accounts have different repayment plans and average failure rates attached to them. For example, the failure rate for a medical collections account is far lower than a delinquent credit card collections account, so these will be graded as a less prominent black mark on a credit report. 

Furthermore, medical collections will be given six months of leeway before credit agencies begin to report on them because there are often errors in reporting associated with individuals setting up insurance payments. The accounts aren't delinquent, there is simply a delay in the insurance company making a transfer payment.

Change 2: 4.0 Will Look at "Trended Data" For the First Time-->
Credit reports are famous for looking at your credit in a single "snapshot" in time. As a result, those with lower credit balances at the time the picture is taken will usually have higher credit scores as a result.

However, these snapshots may not exactly be an accurate indicator for whether a person will repay their debts. Rather, Vantage argues that a person's data should be viewed as a trend over time. In other words, an individual who has $90,000 in available credit but recently added $5,000 as a balance should receive a lower score than a person who has $20,000 in available credit with a $5,000 balance that they have been making steady payments on.

The reason for such a claim is that Vantage believes that a person's trended credit usage data is more important than their static credit data. In their eyes, a person who is making regular payments is a lesser risk than someone who just added a large amount of debt suddenly, even if their total credit limit allows them to.

Change 3: Welcome Data-Mining to Vantage Score 4.0
Many individuals who are just starting out with credit may have insufficient data to determine whether they are reputable borrowers. As a result, it can be difficult for the first lender to determine whether or not to extend credit to that individual.

With the implementation of data-mining into VantageScore 4.0, Vantage will begin to use systems that search data records for information that can determine whether or not an individual should be a statistically reliable borrower. These could include things like regular, on-time payments of a phone bill, apartment rent, or other types of data that show regular payment activity.

How These Changes Could Affect Your Credit Score

The FICO score model is the main credit score model used in determining most lending decisions. The new VantageScore 4.0 Will most likely not affect most borrowers. It’s important to note that if you do benefit from the Vantage score model, you can request the lender use the VantageScore in making a credit decision.

Still, these changes could adversely affect individuals who have a long, solid payment history with high credit limits more starkly than it will individuals who have little or no credit history at all.

Regardless, the advice for those looking to implement counter-changes to this new credit reporting policy is the same as it always has been: make regular, on-time payments of your bills, keep balances low, and practice smart credit usage as much as possible. If you do those things, you should be just fine.

How The Latest Credit Scoring Model Could Affect Your Credit Score.

By: Patrick Mansfield | U.S. Gov Connect | Consumer Finance

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