Find Out How to Score Higher with New Ranking Model
Who is using this new credit card scoring algorithm and who is behind the scoring changes?
The categories scoring weights in order :
Age and type of credit
Percentage of credit limit used
Recent credit behavior
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.