Mortgage Lending New Credit Scoring Model
How will your credit fare with the new 3.0 version of VantageScore, the revised credit scoring model owned by the big three bureaus, Experian, Equifax and TransUnion?
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That depends on your particular credit challenges and lender utilization of the model. Credit issuers must adopt VantageScore 3.0 in order for consumers to benefit from it. This may be faster with the 3.0 model, which VantageScore says it developed to be lender friendly as well as to provide better clarity and options for consumers. One big step was VantageScore tweak to its scoring range, mirroring FICO's 300 to 850 rating span after confusion resulted over VantageScore’s initial 501 to 990 range. According to the VantageScore website, 4 of the 5 leading mortgage lenders, 4 of the top 10 leading auto lenders, 7 of the top 10 financial institutions, and 6 of the top 10 credit card issuers use VantageScore as of early 2013.
45 million consumer credit files from blended time frames representative of current market conditions were used to create the 3.0 product.
VantageScore was launched in 2006.
Mortgage Lending New Credit Scoring Model
The company’s website touts consistency to prospective mortgage lending clients:
With the real estate industry, score distributions are highly consistent across all CRCs.
How this affects consumer mortgage lending scores depends on how the VantageScore model benefits each individual, but those with the following concerns may get a big boost:
Collection Account Reporting
Currently, collection accounts, even if paid off, are factored into all FICO credit scores for up to seven years. But with VantageScore 3.0, collection accounts will no longer be factored into consumer scores if the debt was fully paid or just settled if the balance is zero.
Limited or No Credit History
Have a limited credit history, or no credit history at all? Join 27 to 30 million others in the same FICO boat with three or fewer tradelines on their credit report. VantageScore addresses the problem by creating a 13th scorecard that factors in data such as rent, telecom and utility payment records along with public records. (Not to be rendered obsolete, FICO has said it will now begin researching ways to incorporate alternative records for the tens of millions of people with limited or no credit scores.)
Victims of Natural Disasters
The new model also offers some credit protection to victims of natural disasters. Prior to VantageScore 3.0, their scores didn’t benefit from positive credit actions such as making timely payments in spite of circumstances. Negative and positive accounts were previously ignored.
So, homebuyers, when researching lenders for mortgage pre-approvals, buyers should request information on the scoring model the lender uses. If your score is higher with FICO or VantageScore, research rates and terms for lenders using that model.
Other benefits of VantageScore:
Reason Code Reductions and Descriptions
Reason codes are the alphanumeric codes on credit explanation letters that tell consumers why they didn’t get a perfect score when applying for credit. Each credit score model uses its own formula to calculate scores, so the reasons for scores vary from model to model. Consumers can decipher Reason Codes for the three VantageScore models used by lenders on VantageScore’s consumer site: http://www.reasoncode.org/ VantageScore 3.0 has reduced the number of reason codes to less than 80 and simplified the reason code statements for better understanding. This helps consumers to identify and address issues suppressing their scores, making it easier to improve.
Be Credit Aware
Not keeping track of your credit? Oops! It affects everything from your ability to rent and purchase a home, automobile and other necessities, to your dating life. What? Yes, it’s true. According to a recent New York Times story, more 20 and 30-somethings are including the CS Question in their list of uncomfortable but necessary date queries:
Take The Credit Quiz to see how credit-aware you are!
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