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Credit scores are constantly being tweaked, changed and perfected in order to give lenders better predictive tools about the risks they face with specific borrowers. After its introduction in March 2006, the original Vantage Score has been tweaked to better reflect the current economic climate.
Designed as an alternative to the popular FICO score, a risk assessment tool for lenders, the VantageScore is a joint venture between the U.S.’s three major credit bureaus, Experian, TransUnion and EquiFax. The VantageScore is believed by some to provide a more equitable assessment for younger consumers (those who may have “thin” credit files or be lacking credit history) as well as a consistent, accurate, and easy-to-understand credit score for other consumers.
It’s important to remember, however, that most lenders still use the FICO score to determine the creditworthiness of potential customers. You can get your FICO score through MyFICO.com and when you get your yearly free credit report from Annualcreditreport.com.
According to the VantageScore website, the new 2.0 score helps lenders “look beyond the economic volatility of recent years and reenter the market with confidence.”
VantageScore 2.0, as it is called, uses data blended from two time frames (2006 – 2008 and 2007 – 2009) in order to evaluate consumer behavior prior to the economic crisis and “reducing algorithm sensitivity to highly volatile behavior that can be found in a single timeframe,” according to a Fact Sheet issued by the creators of VantageScore.
In plain English: If you messed up during the recession — either due to job loss or because lenders permitted you to overextend your credit and you fell prey to the temptation — it won’t affect your new VantageScore 2.0 as badly as it would have affected the original score.
More than the original score, VantageScore 2.0 looks at your long-term credit behavior, not aberrations, to gauge your true creditworthiness under normal, stable economic circumstances.
The new VantageScore 2.0 shows greater predictive accuracy across the board, for both new and existing accounts, in all industries that use credit scores to gauge a borrower’s credit worthiness, including:
- Real Estate (mortgages and Home Equity Lines of Credit)
- Car loans
- Bank credit cards
The greatest improvement in predictability was seen in the real estate market, something the new FICO 8 Mortgage Score was also developed to address.
Some of the key features to VantageScore 2.0 are:
- Scores were developed through a sampling of 45 million credit customers across two time frames
- The score’s segmentation structure looks at consumers in 12 individually optimized segments, dividing “full file” consumers into one of four risk categories
- Consumers with a thin credit file or past bankruptcy are scored in a different category
VantageScore notes that some consumer will see a difference in their FICO score based on the new model, while other consumers will only note the usual fluctuations that occur as a customer’s credit history changes, accounts “age,” and balances drop or rise.
As always, the VantageScore 2.0 uses easy-to-understand letter grades of A through F (just like school!) which correspond to numerical ranges on a scale of 501 to 990.
And, also as always, the best way to keep your credit score high is to pay your bills on time, watch your debt-to-available credit ratio, and keep older accounts open to show a lengthy credit history, although that factor is less important with the VantageScore than with a FICO score.
VantageScore 2.0 was introduced for testing in October of this year, and will be released for use by lenders and made available to consumers for viewing in January 2011.