It may seem as if those old credit scores we know and love haven’t changed since the dawn of underwriting. And for good reason — the foundation of most credit scoring models (a person’s payment history, amount of debt, credit history, mix of accounts and new credit inquiries) have long determined whether you can get a loan, alongside numerous other contracts.
But there have actually been some major changes in our nation’s credit scoring system over the last two decades— particularly following the Great Recession, as government efforts pushed for a more consumer-friendly credit scoring/reporting process and industry stalwarts looked for ways to score the millions of borrowers with thin-to-no credit.
Here are the major ways credit scores (and the reports they are based on) have changed in the last 20 years.
1. Hello, VantageScore
While there are lots of different credit scores out in the ether, people are generally most familiar with two credit scoring models: FICO and VantageScore. The former was founded way back in 1956 (its FICO score debuted in 1989), but the latter is a relatively young company. VantageScore launched back in 2006, with its inaugural score ranging from 501 to 990.
2. The Rise of Alternative Data
VantageScore 1.0 rewarded consumers for on-time rental- and utility-payment information present in their credit files. Though this data wasn’t (and, in many respects, still isn’t) commonplace on credit reports at the time, there have been efforts from other key industry players to incorporate rental data as a way for un- or underbanked consumers to build a credit history.
Experian, for instance, launched in June 2010 its Rent Bureau, which collects rental payment data and reports on-time, paid-as-agreed payments as part of a person’s credit file. And just this year FICO announced a new score that uses alternative data like phone, cable, utility payments and public records to generate scores on its standard 300 to 850 scale.
3. A Blind Eye to Small Collections
The eighth version of FICO’s well-known score, launched in 2009 and still in use today, ignores small-dollar “nuisance” collection accounts where the original balance was under $100.
4. A Free Credit Report …
Back in 2003, Congress passed an amendment to the Fair Credit Reporting Act that entitles consumers to one free credit report every 12 months from each credit bureau. You can currently request these free credit reports every year at AnnualCreditReport.com.
5. … & More Free Credit Scores
FCRA doesn’t mandate everyone get a free credit score each year (more on this in a minute). Lawmakers have tried in recent years to pass legislation that would do so, but efforts may have stalled at least partially due to the fact that there are so many credit scores out there — it would be hard to settle on one to mandate by law.
Still, more companies and banks have been steadily providing credit scores at no charge, particularly over the last five years or so. (You can see two of your credit scores for free each month on Credit.com.) And FICO formally launched its Open Access Program — which encourages creditors and credit counselors to share free FICO scores with their customers — back in 2013.
6. A Why After You’re Denied
Risk-based pricing rules proposed in 2008 require lenders to send notice to an applicant after they’re denied credit or offered less favorable terms due to information on a credit report. Alternately, lenders can disclose an applicant’s credit score alongside some context for their decision.
7. Upping the Ante on Adverse Notices
As part of the Dodd-Frank Act of 2010, legislators went ahead and stipulated all lenders include the credit score they used in their underwriting when issuing an adverse action notification.
8. More Detailed Credit Card Data
Credit reports have traditionally considered whether a credit card’s been paid on time and what percentage of your available credit’s in use (i.e. your statement balance at the end of the month versus your total credit limit(s).)
But, back in 2015, TransUnion announced it would begin to include “trended credit card data” on some of its credit reports involving up to 30 months of account history and 82 months of payment performance data. These figures show the exact payments you’ve made over that time period — and the credit score the bureau launched alongside it (The CreditVision New Account Risk Score — told you there are a lot of credit scores) is designed to reward people who made larger payments in lieu of simply sending in the minimum and not running up more charges.
9. A More Consumer-Friendly Dispute Process
Back in 2015, the three major credit reporting agencies — Equifax, Experian and TransUnion — agreed to overhaul the national credit reporting process to better serve Americans as part of a settlement with 31 state’s attorneys general. The bureaus have three years to institute the policies mandated by the agreement — affectionately known as the National Consumer Assistance Plan — but they include major changes to the credit report disputing process.
They include, among other things, employing specially trained personnel to review disputes and supporting documentation; allowing consumers who discover an error after obtaining their credit reports through AnnualCreditReport.com to get a second report free of charge; and providing additional information with the dispute results, including a description of what a consumer can do if they’e not satisfied with the outcome.
10. A Different Way of Reporting Medical Debt
Under the bureaus’ new plan, medical debt — a major (and some advocacy groups argue, unfair) credit score killer — will no longer be reported until 180 days after it was incurred, allowing consumers more time to resolve medical bills with healthcare providers and insurance companies.
11. Another Debt Some Scores Ignore
The bureaus’ agreement was preceded by efforts from VantageScore and FICO to treat medical debt differently by excluding paid medical collections in the newest versions of their credit scoring models VantageScore 3.0 (launched in 2013) and FICO 9 (launched in 2014)
12. Paid? No Problem! (At Least Sometimes)
The VantageScore 3.0 credit score actually ignores all paid collections, as well as any collections, paid or unpaid, under $250. VantageScore 3.0 also follows the 300 to 850 credit score range people are most familiar with. FICO 9 also disregards paid collections.
13. So Long, Public Records
The latest change to come out of the National Consumer Assistance Plan is pretty major: beginning in July 2017, the three major credit reporting agencies Equifax, Experian and TransUnion will significantly reduce the amount of tax-lien and civil-judgment information found in consumer credit files. This move is significant in that it represents the full removal of certain information that has long appeared on credit reports.
Read the original article here.