What Does the New VantageScore Credit Score Mean for Consumers?

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VantageScore Solutions, LLC recently announced the release of a new version of their core product, the VantageScore credit score. VantageScore 3.0 contains a variety of consumer friendly changes that could make it easier for consumers to be approved for loans at competitive rates and terms. The primary changes to their score and benefits to consumers are:

Protecting your credit score from a natural disaster – It seems like once every few years a portion of the United States is devastated by some sort of natural disaster. The most recent, Hurricane Sandy, displaced and otherwise impacted a large segment of the Eastern seaboard leaving thousands of people without basic services. The last thing these people should have to think about is their credit scores.

The new VantageScore score has the ability to ignore negative aspects of credit accounts that belong to consumers who have been impacted by a natural disaster. This is accomplished when the lender notes, via a code, on the consumer’s account that they’ve been affected by some sort of natural disaster.

Easier to understand score range – Let’s face it, FICO’s score range of 300 to 850 is the industry standard and has been for over two decades. Most of us have grown up knowing no other score range than 300 to 850 because, frankly, there hasn’t ever been a different standard. We all know that a FICO score of 750 is great, but not many of us know whether a VantageScore of 750 is good, bad, or average.

Prior versions of the VantageScore credit score were scaled 501 to 990, which was only partially redundant with FICO’s score range. This caused confusion when consumers were trying to figure out exactly what they’re VantageScore meant. This confusion will be all but eliminated because the new VantageScore score is scaled 300 to 850.

Paid and settled collections will be ignored – There have been several attempts, legislatively, to force the credit bureaus to delete paid collections. Thankfully all of those attempts have failed. Now, however, the VantageScore score will begin to score credit report summary as if paid collections don’t exist, by ignoring them during the scoring process.

Paid collections and settled collections both have one thing in common: a $0 balance. Neither paid nor settled collections are removed from credit reports but instead remain on your file for 7 years from the date the original account went into default. And yes, they are just as problematic as if they still had a balance due.

What this change means for consumers is essentially their $0 collections will cease to exist in the eyes of the new VantageScore score. That can mean a variety of things including significant score increases, especially if the consumer has an otherwise pristine credit report.

More of you will have a score – Credit scores are often demonized as being very “black box” and ineffective tools, neither of which is true. One thing is true, you’re better off with a score than you are without a score. Unfortunately not everyone has a free credit score.  It’s not very well known but your credit file has to meet certain minimum standards in order for a scoring system to provide a valid score based on the data.

The standard for FICO to score your credit report, for example, is that your file must contain at least one account (not a collection or public record) that is at least 6 months old AND at least one account that has been updated in the past 6 months. One account can satisfy both requirements. For example, if you have an auto loan that was opened 12 months ago and was updated 1 month ago, your credit file will be scoreable.

VantageScore has loosened their criteria to the point where some 27-30 million more consumers will have a score. This is great news on two fronts. First, the consumer’s application for credit can be processed using the lender’s application processing system, which is score based. Second, the consumer will know where they stand credit-wise. Without a numeric score consumers are left to guess how they’re being interpreted by lenders, insurance companies and other’s that base decisions off your credit score.

John Ulzheimer
John Ulzheimer, Credit Expert for Credit Sesame, is a nationally recognized expert on credit reporting, credit scoring and identity theft. He is twice FCRA certified by the credit industry’s trade association and has been an expert witness in over 170 credit related cases to date. Since 2004 John has been interviewed and published over 3,000 times on the topics of personal finance and consumer credit.

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