This week, VantageScore Solutions announced the completion of VantageScore 4.0, its fourth-generation credit score. VantageScore, a rival to FICO, has experienced rapid growth and supplies the credit score used by most leading free credit score sites, including CreditKarma. Lenders are also increasingly turning to VantageScore, with 20 of the top 25 financial institutions using the score in some of their underwriting decisions. With the new version of the credit score comes three changes that can have a big impact on millions of Americans:
- Less emphasis on medical collections and other derogatory and public-records data.
- More reliance upon “trended data” rather than static data.
- Use of machine learning to create better scores for people with limited credit data.
I will be explaining each change in greater detail, including the potential impact on borrowers.…
When Does This Go Live?
The new score will be available later this year. Adoption of the score will be up to lenders and free credit score sites. Over time, you should expect to see sites like CreditKarma migrate to version 4.0 and lenders will likely follow (although lenders tend to move more slowly because they will want to validate the new score on their data).
The launch of version 4.0 is just a further reminder that borrowers have more than one credit score. If you use a free credit score site, you should not obsess over a few points, because chances are high that the score you are looking at is not the exact score used by your lender. But these scores are still valuable indicators of your likely risk level and acceptance probability.
The new VantageScore 4.0 model reinforces a few industry trends. Medical debt will increasingly be ignored. Collection items with faulty data will harm fewer people. Consistency in your behavior will become more important than point-of-time, making “gaming” of any credit score more difficult. And all industry players are trying to find new ways to qualify thin file borrowers. We should expect all of these trends to continue.
Read the full article here.