Consumers have control in lending process

By: Barrett Burns
Date: June 23, 2020

Dear Colleague,

With so much media attention on credit scores, loan providers and other external entities that influence lending decisions, it’s easy to understand why consumers can feel as though the credit process is outside their control. That’s hardly the case.

It’s important for consumers to recognize that they do, in fact, have a significant measure of control over their credit scores and the borrowing process.

Behaviors reflected in consumer credit files are matters of history. They can’t be changed (unless, of course, they are inaccurate), but that doesn’t mean consumers are powerless. Credit scores reflect consumer behaviors, so consumers can control their scores by changing those behaviors. Adopting new habits today can bring significant credit-score improvements relatively quickly. Furthermore, consumers can take action in order to get better terms and interest rates on loans.

I recently wrote an article for Credit.com, titled “What REALLY Influences Your Credit Score,” in which I introduced a VantageScore infographic that explains how things like payment history, percent of credit limit used, and available credit can impact a consumer’s credit score.

In the article, I said that a single missed payment can cause a credit score to drop by as much as 100 points, but that missed payment becomes less and less impactful in the score calculation as it gets older. As long as the consumer resumes practicing good credit management—keeping balances low and making future payments on time—over time, his or her score will improve.

Secondly, while a credit score is an objective interpretation of a consumer’s credit files, different lenders view scores differently. Different lenders will choose to charge different interest rates based on the amount of risk they believe issuing particular loans will have on their business. Lenders’ determination of risk, based on credit score and additional factors such as down payment and income, drives loan pricing.

Lenders view the amount of risk a borrower represents in different ways, and they don’t all offer the same interest rates. That means borrowers should shop around to find the best terms and the lowest interest rates, which can save thousands of dollars over the life span of a loan. Rate shopping is another way consumers can exercise control in the lending process.

Please read on for much more great credit scoring content. The first article covers the validation results of the VantageScore 1.0 and 2.0 models. We validate our models annually to understand performance, and unlike other developers, we transparently post the information on our website.

And I’m especially delighted to share with you the news that Credit.com, one of the most trusted sources of financial information for consumers, has embedded the VantageScore 3.0 model into its “Credit Report Card” so it’s available to consumers at no cost.

Also included in this month’s newsletter is an article for newlyweds about how to protect against damaging credit scores when paying for a wedding and beginning a financial life together. Our “Did You Know” article explains how individual account balances and a consumer’s overall credit balances can impact his or her credit score. And our “Five Questions With” guest this month is Sarah Rosen Wartell, president of the Urban Institute.

Kind regards,

Barrett Burns