FICO’s chief competitor introduced a new credit score Tuesday that captures up to 30 million more people that otherwise couldn’t be scored by conventional credit scores.
The VantageScore 3.0 can create a score for a so-called thin file consumer by considering accounts at least 1 month old, factoring in nonaccount data such as collections, inquiries or public records, and counting accounts that are more than 2 years old.
“A significant portion of the population was not getting scored by the mainstream credit scoring model,” says Sarah Davies, senior vice president of analytics and product management at VantageScore Solutions. “We wanted to address that.”
A credit score helps lenders measure how likely it is that you will repay your debt obligations. The score is based on your debt payment history found in your credit report. Consumers with higher credit scores have an easier time qualifying for loans and receive better terms, such as lower interest rates.
Davies said the new VantageScore will measure those just starting out with credit, such as immigrants or young people, along with high-risk consumers who have public records or collection accounts, but no credit. The score will also gauge consumers who haven’t used credit in a while, such as expatriates or retirees who have paid off their debts. Davies said that 70 percent of the latter group had near-prime or prime credit scores.
This is a win-win for lenders and consumers, says John Ulzheimer, president of consumer education at SmartCredit.com. Lenders will be able to qualify more consumers, and consumers will be better matched to a loan that reflects their creditworthiness.
“You never want to not have a credit score,” Ulzheimer says. “Because then lenders are forced to process you in a manual environment, which is never a good thing. Your credit options are limited to second-tier products.”
The new score also helps consumers in two additional ways. First, VantageScore 3.0 ignores collections accounts with a zero balance. That means if you have paid or settled a collections account, that account won’t hurt your credit score.
The score also won’t count any negative information from an account that may be affected by a natural disaster. It will only consider positive information. Lenders have the ability to flag accounts on credit reports that belong to a victim of a natural disaster. They will remove the flag when the account returns to normal. Davies says the idea to have a score sensitive to natural disasters came up shortly after Superstorm Sandy hit the East Coast.
Last, the new score shares the same scoring range as the FICO credit score, 300 to 850. Previously, the VantageScore range was 501 to 990.
“The logic there is that many people are familiar with that range. It has become part of the language of credit scores,” says Davies, “so it made sense to translate to that score range that people already work with.”
The VantageScore was developed by the three credit reporting bureaus — TransUnion, Experian and Equifax — and first introduced in 2006 as an alternative to the widely used FICO credit score. It is unknown how many lenders use the VantageScore model over the FICO model.
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