How the Newest Scoring Model Could Impact Your Credit Score

Advertising Disclosure: When you buy something by clicking links on our site, we may earn a small commission, but it never affects the products or services we recommend.

Credit score
garagestock / Shutterstock.com

Perhaps you’ve never heard of VantageScore, but this credit scoring model is about to get revamped — and your score could be affected.

VantageScore Solutions, the company behind the VantageScore credit scores, announced this week that its new VantageScore 4.0 credit scoring model will become available to lenders this fall.

VantageScore Solutions launched in 2006. The company and its VantageScore credit scores compete with Fair Isaac Corp., or FICO, and its more established FICO Scores. To learn more about the differences between your VantageScore and FICO credit scores, check out “Heads Up, FICO: You’ve Got Company.”

VantageScore Solutions’ current credit-scoring model, introduced in 2013, is known as VantageScore 3.0. VantageScore 4.0 will build on it through three key changes.

First, VantageScore Solutions says the 4.0 model will be the first credit scoring model used by the three national credit reporting agencies — Equifax, Experian and TransUnion — that is designed with the National Consumer Assistance Plan in mind. The NCAP is an initiative of the three national credit reporting agencies (CRAs) that will take effect July 1.

As we recently reported in “2 Types of Black Marks Might Vanish From Your Credit File Soon,” this means the three agencies plan to stop collecting and reporting a lot of information about civil judgments and tax liens in consumers’ credit files.

With these impending changes in mind, VantageScore Solutions says the 4.0 model:

  • “Distinguishes medical collections from other types of collection accounts, ignores medical collections less than six months old (to allow time for insurance-payment processing) and penalizes medical collections less than non-medical ones.”
  • “Relies less on derogatory collections and public-records data to ensure that the model will not lose substantial predictive strength in the likely event that these records fail to meet enhanced data quality standards and are removed from consumer credit files under provisions of the NCAP program.”

Second, VantageScore 4.0 will also be the first credit scoring model used by the three national CRAs that will include what’s known as “trended credit data,” according to VantageScore Solutions.

As Credit.com explains it, this means the 4.0 model “looks at a consumer’s credit behavior over time … For example, the score takes into account how a consumer’s credit balance has changed over a period of months, rather than taking a single snapshot in time.”

The third key change for VantageScore 4.0 is its use of data mining to create scorecards for consumers with sparse credit histories.

In other words, Credit.com explains, the model “used large data-processing platforms to examine thousands and thousands of combinations of consumer behaviors to identify which ones were associated with people paying their bills on time.”

What do you make of this news? Share your thoughts below or on our Facebook page.

Get smarter with your money!

Want the best money-news and tips to help you make more and spend less? Then sign up for the free Money Talks Newsletter to receive daily updates of personal finance news and advice, delivered straight to your inbox. Sign up for our free newsletter today.