The world of credit scoring is not unlike the world of smartphones. Every few years competing developers come out with their latest and greatest credit scoring models, which are supposedly better at their job than any and all predecessors and rivals.
Most of the time when a new scoring model is announced it’s greeted with the same level of excitement as when your in-laws show up.
Not so much last week. Last week VantageScore Solutions, which is FICO’s primary rival in the credit score space, announced the 3rd generation of their credit score, the VantageScore Score 3.0.
The score contains several unique and consumer friendly features including:
Natural Disaster Protection Logic
If you live in an area that has been hit hard by a natural disaster, such as Hurricanes Katrina or Sandy, and you are unable to maintain your credit payments, your credit report can become polluted with late payments.
Your lenders, who still want to get paid regardless, can note on the account of your credit reports that you’re being impacted by a natural disaster.
If VantageScore’s new model sees that notation, which is called a “narrative code”, their score will ignore any negative aspect of the account. This means you can focus on getting your life back in order and not on your credit score.
More Lenient Minimum Scoring Criteria
Most people don’t know that your credit report has to qualify to be scored. Different scoring systems have different minimum standards that must be met in order to score your credit file.
FICO, for example, requires that your credit reports have at least one undisputed account that is older than 6 months and at least one undisputed account that has been updated in the past 6 months.
If you don’t meet those two criteria then your credit report cannot be scored by a FICO scoring model.
The new VantageScore model has much more liberal criteria and can now score between 27 and 30 million more credit reports that were previously unscoreable by their older models.
To put that in perspective…that’s larger than the population of Texas.
It’s always better to have a score than it is to not have a score. No score means less access to competitively priced credit from mainstream lenders.
$0 Dollar Collections Are Ignored
This is a big deal. Collections, paid or unpaid, remain on credit reports for seven years and can negatively impact your score the entire time.
What that means is at any given time there are seven years of collection vintages on consumer credit files, which means millions of consumers have paid and unpaid collections at any point in time.
The new VantageScore score will ignore all collections that have a $0 balance. That means if you pay or settle a collection, and it is subsequently updated to show the $0 balance, your VantageScore could go up, and go up considerably.
Several bills have been introduced that have attempted to accomplish this exact thing but went about it a different way by trying to mandate the removal of paid collections from credit reports.
New Score Range
The score range, formally referred to as “scaling”, of a FICO score is 300 to 850. In fact, we’ve never known any other score range other than 300 to 850. Since 1989 when FICO rolled out its first credit bureau score with Equifax 300 to 850 has been the industry standard range.
VantageScore’s old score range was 501 to 990, which was confusing to consumers because the numbers didn’t line up and even when there was overlap the numbers didn’t mean the same thing. A FICO score of 800 does not mean the same thing as a VantageScore of 800.
VantageScore has changed the scaling of their newest score to mirror the FICO range, 300 to 850. That means consumers and lenders who use FICO and VantageScores don’t have to worry as much about conversion issues across the two scores.
And while a FICO 800 is still not going to mean the same thing as a VantageScore 800, at least the interpretation will be closer and certainly less confusing for consumers.
The VantageScore score is still a distant second in market share to FICO’s scores. However, many of the largest lenders across all industries are using it and, according to Experian, over 1,300 companies are getting a VantageScore from them.
John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a contributor for the National Foundation for Credit Counseling. He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. The opinions expressed in his articles are his and not of Mint.com or Intuit. Follow John on Twitter.