Big changes coming to popular credit scoring model

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A popular credit scoring model that’s commonly sold to consumers by the three main credit bureaus is about to get a makeover.

Get ready for VantageScore 4.0 this fall.

Read more: Can I fix my credit in a week?

Popular credit scoring model evolves

First things first: Even though VantageScore is popular, it’s really just an impostor. It is not the same thing as the real FICO score used by most lenders.

The three main bureaus hated that FICO has traditionally dominated the credit score market, so they started selling their own “fako” score that we know as the VantageScore about 25 years ago.

In reality, VantageScore is just one of hundreds of trademarked proprietary scoring systems that compete with the FICO score.

Unless you’re careful, the VantageScore is the one you’ll most often be sold in the marketplace. Currently, the VantageScore is measured exactly like the real Fair Isaac Corporation’s FICO score — on a scale of 300 to 850 — a fact that will only cause more people to confuse the two scores.

With so many credit card issuers now providing your true FICO score on your monthly statement, it makes no sense to pay for a VantageScore from one of the three bureaus.

That said, some people will still mistakenly get a VantageScore — either from a paid provider or through a variety of free options.

So here’s an overview of the changes that are coming when the fourth iteration of this particular credit scoring model rolls out this fall:

Consumer credit behavior over time will be considered

Prior versions of the VantageScore scoring model offered a momentary snapshot of your credit. No attention was paid to the progression of your credit habits over time.

That won’t be the case going forward. Now the idea of “trended credit data” that’s monitored over many months is coming into play.

“By capturing the trajectory of borrowing and payment behaviors, trended credit data provides a more precise, holistic view of consumer habits,” the company notes.

Use of trended credit data can make the VantageScore up to 20% more predictive, according to Credit.com.

Select public records will be excluded

Just as Equifax, Experian and TransUnion jointly decided to remove most tax liens and civil judgments from consumer credit files effective July 1, 2017, so too will the VantageScore 4.0 model remove those same records from your credit mix when it rolls out in the fall.

In addition, medical collections will also get a break in the forthcoming VantageScore calculations.

Under the VantageScore 4.0 model, an outstanding medical bill won’t start to harm your score until six months have passed. That waiting period acknowledges that it can take several months for financial responsibility to be determined between consumers and insurance companies.

Machine learning will score consumers with scant credit history

If you’re new to the world of credit, you don’t have to be a big question mark to potential lenders anymore.

Using thousands of various consumer behaviors, artificial intelligence software in the VantageScore model will be able to figure out if you’re likely to pay your bills on time or not — even when you have no established credit history.

“The developers of the VantageScore 4.0 model leveraged machine learning techniques to better score consumers with sparse credit histories,” the company notes. “This approach significantly increased the model’s ability to accurately score 30-35 million consumers who can’t obtain credit scores when competing scoring models are used.”

Use of machine learning can make the score 17% more predictive if you haven’t used credit in the last six months and 30% more predictive for people who have no credit at all, according to Credit.com.

Yet the score remains the same…

With all the changes coming specifically into play for the new VantageScore model this autumn, it’s helpful to take a step back and remember that the key to a good credit score is really the same no matter which scoring model you’re talking about…

Here’s how to improve your credit score

If you’re suffering from poor credit, there are several surefire ways to get your credit healthy again. Follow these tips and you’ll be well on your way:

1. Always pay your bills on time and pay down the total amount you owe.

2. Keep a low credit utilization rate. Aim to use only 30% or less of your available credit at any one time.

3. When you pay off a credit card, don’t close the account.

4. Make sure different types of credit make up your credit mix. But avoid store cards at all costs!

5. Don’t open too many new lines of credit at once.

Read more: Best ways to improve your credit score

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Theo Thimou About the author:
Theo is director of content for clark.com. He has co-written 2 books with Clark Howard, including the #1 New York Times bestseller Clark Howard's Living Large in Lean Times.
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