You Better Get to Know VantageScore 4.0
In the fall of 2017 VantageScore Solutions will be releasing the 4th generation of its credit scoring model, VantageScore 4.0. Of course, there are already “scores” of different credit scores commercially available so the introduction of yet another new credit scoring model is probably not the most exciting news on the planet. Except this time things are a bit different. VantageScore 4.0 will feature some meaningful differences from any other credit score currently on the market.
What Makes VantageScore 4.0 Different?
- Trended Data
VantageScore 4.0’s most anticipated enhancement is the consideration of “trended data” in the calculation of your credit scores. In fact, the new scoring model is the first and currently the only tri-bureau credit scoring system which considers trended data. Not even FICO’s scores consider trended data, but that’s likely to come in future generations of their scores.
Trended data offers a historical view, spanning 24 months, into how you manage your credit card accounts. It allows lenders and credit score developers to determine whether you are a “transactor” or a “revolver.” Transactors are consumers who pay their monthly credit card balances off in full while revolvers roll outstanding balances from one month to the next.
Studies show that revolvers are riskier borrowers than the more disciplined transactors. In fact revolvers have been found to be 3 – 5 times riskier than transactors who pay off their full balances monthly. Under VantageScore 4.0 it will be more important than ever to break the bad habit of charging more than you can afford to pay off in a given billing cycle. Transactors, on the other hand, might just be in store for a credit score increase under the new scoring model.
- Medical Collections Treated Less Harshly
VantageScore 4.0’s new friendlier treatment of medical collections is a win for many consumers. Under the new scoring model medical collections will not be considered at all for the first 6 months after they appear on a credit report. According to VantageScore Solutions, this change has been enacted in an effort “to give insurance companies ample time to make payments.”
Once the initial 6-month period has passed, medical collection accounts are still to be calculated differently under VantageScore 4.0. Unpaid medical collections older than 6 months old will cause less of a negative score impact than other types of collection accounts, such as those for unpaid credit card debt or defaulted apartment leases.
- Liens and Judgments Are Less Influential
Thanks to the National Consumer Assistance Plan (NCAP), the 3 credit reporting agencies are preparing to remove the vast majority of judgments and about half of all tax liens from credit reports this July. As a result of this credit reporting change VantageScore 4.0 was designed to be less reliant on derogatory public records data. In other words, credit scores will be impacted less negatively under the new scoring model whenever a judgment or tax lien is present on a credit report, if you’re one of the unlucky few to have them on your reports after July of 2017.
When Will Lenders Begin Using VantageScore 4.0?
Asking the question “When will lenders will begin using VantageScore 4.0?” is a bit like asking when your favorite baseball team will win the World Series. There is no definitive answer to the question and any attempted answer is purely speculation.
However, it is fairly safe to assume that you probably will not see a VantageScore 4.0 credit score being used to evaluate your loan application anytime in the immediate future, primarily because it’s not going to be available until the Fall of 2017. On top of that, it is both time-consuming and expensive for lenders to upgrade to a new credit scoring model. If a lender is satisfied with the predictive ability of its current credit scoring model then that lender might not be particularly motivated to undergo the considerable expense and effort involved with making a change.
Having said that, don’t underestimate the value of the trended data. This is certainly a catalyst that could lead to an accelerated market adoption. And you’d be well served to get your credit card balances to some level where you can pay them in full sooner rather than later.