We have come across a great article from CNN Money that deserves to be both shared and discussed regarding the model by which credit scores are based. The more widely known credit score is FICO produced by Fair Isaac, however, changes are being implemented by VantageScore which may help boost a consumer's credit score.
Consumers are able to obtain their credit report for free once a year by visiting www.annualcreditreport.com. This report is a compilation of data from three reporting agencies: EquiFax, TransUnion and Experian. Typical FICO scores range from 300-850, whereas VantageScore, also used by TransUnion and Experian have scores that range from 501 to 990.
Although the exact model for credit scores is not transparent, we know major components are length of credit history, debt to income ratio and open lines of credit that have been applied for and approved. Credit scores factor in debt and collections data for up to seven years. In this new model, however, VantageScore 3.0 will no longer include debts that have been paid off even if it falls within the typical 7 year time frame. Rent and utility payments will also be factored into the score. Victims of natural disasters may also benefit from this new model assuming they are making on time payments and displaying good credit behavior.
As the article notes, the boost in credit rating only matters for lenders using VantageScore 3.0. FICO is still the most popular credit model currently in use by 6 of the top ten credit card issuers and by 7 of the top 10 financial institutions. FICO did announce they will be looking into alternative records to calculate the score.
If scoring models change across the board then yes, your credit score may increase. However, what happens when there is a pool of consumers with high credit scores all around? Will financial institutions and credit card issuers inflate their criteria for securing loan debt? What do you think?
Additionally, as our Government continues to change policy in an effort to rebuild our economy what is the true outcome? How did we get into an economic downturn in the first place? Was it not from overspending and over promising. Having a higher credit score and encouraging consumers to borrow money again may not solve the overarching problem- just some food for thought.
Let us know what you think- have you heard of VantageScore before?
As always,
Savvy Student
Consumers are able to obtain their credit report for free once a year by visiting www.annualcreditreport.com. This report is a compilation of data from three reporting agencies: EquiFax, TransUnion and Experian. Typical FICO scores range from 300-850, whereas VantageScore, also used by TransUnion and Experian have scores that range from 501 to 990.
Although the exact model for credit scores is not transparent, we know major components are length of credit history, debt to income ratio and open lines of credit that have been applied for and approved. Credit scores factor in debt and collections data for up to seven years. In this new model, however, VantageScore 3.0 will no longer include debts that have been paid off even if it falls within the typical 7 year time frame. Rent and utility payments will also be factored into the score. Victims of natural disasters may also benefit from this new model assuming they are making on time payments and displaying good credit behavior.
As the article notes, the boost in credit rating only matters for lenders using VantageScore 3.0. FICO is still the most popular credit model currently in use by 6 of the top ten credit card issuers and by 7 of the top 10 financial institutions. FICO did announce they will be looking into alternative records to calculate the score.
If scoring models change across the board then yes, your credit score may increase. However, what happens when there is a pool of consumers with high credit scores all around? Will financial institutions and credit card issuers inflate their criteria for securing loan debt? What do you think?
Additionally, as our Government continues to change policy in an effort to rebuild our economy what is the true outcome? How did we get into an economic downturn in the first place? Was it not from overspending and over promising. Having a higher credit score and encouraging consumers to borrow money again may not solve the overarching problem- just some food for thought.
Let us know what you think- have you heard of VantageScore before?
As always,
Savvy Student
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