Insider Alerts Us To New Credit Score Ranking Model

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Find Out How to Score Higher with New Ranking Model

There is a new Credit Scoring Model in Town and It’s  coming for YOU!  The revised algorithm used in determining credit scores is again changing, with major changes that have enough weight to make both cautious consumers along with high limit borrowers rethink their credit plans.A major change we are being told is that:  those who currently that have high scores and have stood by the the time tested practice of never closing a credit card account may now possibly loose points.

Who is using this new credit card scoring algorithm and who is behind the scoring changes?

Of course, it’s the Big 3!   Experian, TransUnion, Equifax  and it’s not using the normal 20+ FICO scoring models either (FICO 5, FICO 8, FICO 9, etc).  
It’s called the “VantageScore”.  Many of you have seen this scoring system popup  when checking your free credit reports (mybankrate, quizzle, etc.)  and this model generally gives higher scores than the industry standard FICO scoring models.   Insiders say that this system handled 7- 8 billion applications last year alone with these new account applications being primarily for credit cards.  The mortgage industry only uses FICO scoring models, so this will not have any affect on your FICO scores.
The VantageScore® 3.0 model scale is from 300-850.  A score is then determined from information supplied by reporting vendors into your credit file.  Then, that information is separated into six distinct categories and categories vary in the percentage weight of a score.   
The categories scoring weights in order :
  • Payment history
  • Age and type of credit
  • Percentage of credit limit used
  • Total balances/debt
  • Recent credit behavior
  • Available credit.
The VantageScore® 3.0 credit score is compiled with what is known as current trending data is the latest significant  influence.  The reality is, this credit score will focus on how a consumer’s debt(s) is managed on a month to month basis.   In basic terms this will benefit a someone who is paying down debt every month is likely to be scored higher than someone who is simply maintaining minimum monthly payments.
This change will most likely affect consumers with high credit scores the most.  The use of trending data is to forecast indicators for late payments and defaults prior to a borrower actually being late or defaulting.  So it’s the latest data driven crystal ball!
Another major change you need to be alerted to is retaining aged open accounts in relation to the credit limit to usage.   Yes, this has been a factor in the past also, however the change is giving better scoring to more accounts with lower credit limits opposed to a few accounts carrying high dollar limits – some what of a reversal from the past.  Keep in mind we are only talking about this scoring model and not credit issuers using FICO scoring models.  If we interpret this correctly, a consumer with $10,000 in credit card debt with a cumulative total credit limit of $40,000 on  five cards theoretically could score better than someone with $4,000 in debt on a single $10,000 limit.

What the VantageScore® 3.0 is doing for credit issuers is saying – we are using risk management by spreading it across several vendors (cards) opposed to one high limit card taking the loss.  So a consumer will score lower for having large credit card limits that we have all been seeking for the past several years.  If you have an excellent credit score – you are probably going to suffer a score drop with this algorithm.

Good News is with the removal of negative items such as judgments, delinquent medical debt(s) and tax lien(s) could fair better using this scoring system.  The removal of court  judgments, medical debt(s) and tax lien(s) out of the algorithm follows the 2015 agreement between Experian, TransUnion and Equifax credit bureaus and over 31 state attorney generals.  The reasoning behind this is that court judgments and tax liens are usually disputed along with being full of errors.   Also,  negative medical debt is many times reported and due to slow reimbursements by insurance companies that people have no control over.
So now, we are at a fork in the road  – do you continue to build credit accounts the way we have for the past 10 years and stick to the FICO system or move your strategy towards the VantageScore system?  We are seeking the names of the vendors who are actually using the Vantage Score for credit issuance and will keep you posted when we know for sure this is a scoring model that is really used and by what vendor.  We do have vendor scoring information in the Credit Mastery Book to help you find the right vendor and who they pull credit reports from.
Experian, TransUnion, Equifax, VantageScore® 3.0, FICO, MyBankRate, Quizzle are all copyrighted and trademarked names and our use is for information to consumers and not for the purpose of any form of infringement.
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