Equifax, Experian, and TransUnion unveiled the Vantage credit scoring system in 2006, competing directly with the well-established FICO system. Just over a decade later, with growth upwards of 40% per year for the last few years, Vantage scoring has made a name for itself. With the expansion of free credit scores, Vantage focused on educating consumers and providing easy access to their scores at no cost. Vantage credit scoring has distinct differences from the traditional FICO data, which benefits millions of consumers. In 2016, the company provided over 8 billion credit scores on consumer applications.
Initially offering credit score data for 30 to 35 million previously unscorable consumers, the Vantage score promotes itself as a predictive model that considers alternate data points such as rent and utility payments, to assist those considered unscorable. The calculations also look back further than FICO, considering 24 months of data, and provides a score 30 days after account opening, rather than the six-month waiting period FICO requires.
While most banks continue to rely on the FICO score for mortgages, due to Fannie Mae and Freddie Mac requirements, there is headway made among other lending circles such as auto loans and credit card applications. You might also find the Vantage Score more widely used for non-lending purposes such as rental applications, employment credit checks, and insurance.
Upgrading the Algorithm
Both FICO and Vantage update their scoring to reflect new research results on default risk, changes in legislation, and trends. Currently, Vantage offers three scoring models and in the 4th quarter of 2017 will introduce the Vantage Score 4.0. The new scoring will include three major changes in the way the company calculates your credit score.
Available by the end of 2017, the new model will eliminate medical debt, judgments, and tax liens on the majority of credit files, calculate utilization differently, and put more emphasis on trending balances.
Vantage Score Changes For 2017:
- Eliminate paid medical debt and most tax liens and judgments. A legal settlement between 31 State Attorney Generals and the three major credit bureaus, changed the way they reported tax liens and judgments on credit files. The lawsuit argued that the majority of this data contained errors which adversely affected The settlement puts strict terms on when the bureaus could include judgments and tax liens, identified from public records, in consumer reports. The Vantage score changes reflect these new standards and will not include most judgments and tax liens on credit files by the end of 2017. Medical debts get similar treatment because of the reliance on insurance and their tendency to pay health care providers slowly.
- Recalculating the use of credit. Credit utilization is one of the prime factors considered in your credit score. The 3.0 Vantage model weighs the ratio indicating available credit to actual balances at 23%. The result is that consumers benefit from increasing credit limits to lower the utilization ratio. The best-case scenario is to maintain very high limits, with low usage. For example, to have $25,000 in available credit limits while averaging $5,000 in balances gives you a much more favorable ratio than having $5,000 in balances and $10,000 in available credit.
The new scoring model, however, will begin to penalize consumers who have high credit limits. With higher credit limits, consumers could quickly run up credit balances, leading to higher rates of default among consumers with previously low utilization. The challenge for consumers is that FICO continues to reward high credit limits and low balances with a higher score. The changes will mean that what benefits the FICO scoring model will now hurt your Vantage score.
- Trajectory of account balances. The 4.0 model will begin to consider how your balances trend. Credit files that see growing debt balances will score lower than those with shrinking balances, over time. Looking at the trajectory will reward consumers who are paying down debt, well before the final payoff.
Impact Among Lenders
Lenders choose which score to use. Just as consumers have many different credit scores due to different algorithms, lenders may also choose from multiple scoring models. FICO offers nine formulas, FICO XD, along with specialty scores for specific industries. Vantage will soon have four. Consumers have no control over which company or which scoring model a lender or company chooses to review when making an application decision. If lenders do not like the new algorithms, they may continue to use older versions of the score. It can take years for companies to change which scoring model they use.
Additional Underwriting requirements. In most cases, the credit score is only one part of the application process. Lenders may also use other factors such as income, savings, job history, and length of time in your home to make a final decision. Eliminating negative data previously considered in credit files could lead to changes in the underwriting process. Lenders can choose to review public records themselves due to the changes in calculating credit scores.
Impact Changes Will Have on Consumers
Higher credit scores. Consumers with negative marks on their credit file due to medical debt, judgments, or liens, could see a jump in credit score when companies use the latest scoring model. While the majority will see an improvement of less than 20 points, some scores could rise over 40 points.
Liability remains the same. Eliminating data from credit files does not impact liability for a debt or a company’s ability to garnish wages or attach liens on your property. Delinquent accounts and debts in collection will continue to appear on credit files for up to ten years, depending on the debt.
The changes coming in 2017 will help consumers with negative marks on their credit due to medical debt, judgments, and tax liens. The new scoring also benefits consumers striving to eliminate debt while hurting those with large available credit lines and low credit use. Vantage continues to help consumers seeking to repair or establish credit by incorporating a longer look back and considering non-traditional data sources.