Vantage Scoring Model Updates- Everything you need to know.

The FICO credit score model has been used for decades. But there is mounting evidence that the model is outdated and does not accurately represent the credit-worthiness of Latino, African-American and young home buyers. Critics are calling for new ways to measure credit-worthiness, and the VantageScore 3.0 is a popular option.

What Is Wrong With the Old Model?

The current models lock out a lot of potential buyers who don’t have high FICO scores but who could still be relied on to pay their mortgage. People who do not have recent installment loan or credit card information suffer lower FICO credit scores. Smaller institutions like credit unions, payday lenders and subprime lenders may not properly report loan repaying information that would boost scores. By using a more up-to-date model, more people would have a chance to borrow for a home. Fannie Mae and Freddie Mac are considering allowing use of one more modern model, VantageScore 3.0.

Things to Know About The new Vantage Scoring Model

The new VantageScore will range between 300 and 850, which is the numerical scale used by other credit scoring models. If a borrower had a score between 501 and 570 under the old VantageScore model, he or she would have a score between 300 and 508 in the new one; this is a low score that indicates a bad credit risk. Someone who had a score between 851 and 870, however, would be considered an average borrower with a score between 763 and 780.

Your VantageScore is drawn from information that includes public records, credit inquiries, collections and credit accounts. Information from the past two years are considered the most important. Different credit use behaviors have different weights of influence on your score. The most important factors are:

Your payment history (40% of your score)
Depth of credit; that is, how much information is available (21% of your score)
Credit utilization (20% of the score)
Your credit balances (11%)
Your recent credit use (5%)
Your available credit (3%)

The VantageScore 3.0 leaves out a lot of information that hurt people in older scoring models. Any account that was in collections that has been paid in full is not counted. Less credit history is needed to calculate a person’s credit score, which means that more people are able to get access to credit sooner. This is a feature that can open credit opportunities for 30 million people. People who are victims of natural disasters are protected against negative credit records that can occur after such an event. The VantageScore’s reason codes are far more transparent, letting people know what has to happen for them to improve credit scores.

While the scoring method is the same for all bureaus, you may wind up with different VantageScores from the three credit reporting agencies. This is because they each use internal data that can contrast with what the other bureaus have.

The way to achieve a good credit score is pretty straightforward and similar to the classic advice. To get the highest score and get access to the best lending opportunities:

Make all of your payments on time every month. This factor is weighted heavily in your VantageScore, so it has the most influence on your ability to get a loan.
Keep your credit card balances low. When creditors see that you have used up a lot of your extended credit, it can look like you are not able to handle money responsibly.
Only apply for credit when you need it. This way, new inquiries are not drawing down your credit score.

FICO Score 9 – Why Fannie/Freddie Aren’t Using It

As of August 2014, the ever popular FICO score co. announced that it had undergone a change in the formula that calculates the score. The change specifically no longer penalizes consumers who have a payment history detailing collection of medical debt. The score is dubbed “FICO Score 9” and, at least on the surface, looks to improve the credit scores of millions of consumers.

Now, consumers with outstanding medical debt will be more likely to get approved for car loans, credit cards and other types of new credit. In fact, the new formula is expected to raise scores by an average of 25 points for those who qualify – and even an increase of as little as 25 points can make a big difference.
But there’s one very notable thing about this new formula to take note of…
Consider the fact that the two mortgage financing juggernauts, Fannie Mae and Freddie Mac, won’t be using the new FICO Score 9 to evaluate loan applicants – a fact that greatly impacts the qualifications of potential homeowners when it comes to credit score.

Why Not Fannie/Freddie?

Since Fannie Mae and Freddie Mac are government-sponsored, they dictate the type of scoring software versions that can be used for underwriting purposes. In fact, it’s estimated that they both currently use a FICO score that’s two versions behind Score 9. What’s more is that there’s no telling when – or if – Fannie Mae and Freddie Mac will ever use Score 9.

What Can You Do?

So what can you do if you have outstanding medical debt and would like to – but currently don’t – qualify for a mortgage loan? Call it unfair, based on the new formula in FICO Score 9, but the only way is to repair credit via debt management and other strategies to get your score into a position that qualifies for such a loan.

Credit repair can be difficult – especially if there are medical debts involved – potentially putting a great hamper on consumer finances. But until Fannie Mae and Freddie Mac start using the latest formula, it’s the only way to improve your score to qualify for a mortgage loan.

So follow the standard credit tips (i.e. on-time payments, keeping debt within 30 percent of your total credit allotment and limiting irresponsible spending, among others) in the meantime. Sooner or later, either Fannie Mae or Freddie Mac will catch up to modern times or your score will be good enough on its own to qualify for low-interest loans.

For more information on how to repair your credit scores fill out the form below or call our office at 617-265-7900.

Credit Score Factors – What is the determination?

Credit scores range from 300 to 850, with 850 being the best possible credit score. According to FICO, five different categories of information are used to calculate your credit score: Payment history, credit utilization, length of credit history, mix of credit and new credit.

Payment History

Your payment history is based on the payments you have made to credit accounts in the past. It is the single most important factor used in determining your credit score and accounts for 35 percent of the overall result. Account types considered in this part of the calculation include mortgages, auto loans, retail accounts and credit accounts. This part of the calculation also includes judgments, foreclosures, bankruptcies and other serious financial issues.

Credit Utilization

“Credit utilization” refers to the percentage of your available credit that is currently in use. The higher this percentage is, the more your credit score will drop. Using a large percentage of your available credit is considered poor debt management, and potential lenders see it as a warning sign that you may have trouble making payments if they extend you more credit. Credit utilization accounts for approximately 30 percent of your credit score.

Length of Credit History

The length of your credit history shows lenders how long you have been using credit. This part of the calculation considers the age of each of your accounts individually, as well as the average age of all accounts. The longer your credit history, the higher your score will be. Length of credit history accounts for 15 percent of your credit score.

Mix of Credit

In general, it’s best to have a variety of credit types, along with some accounts that are not currently in use. Different types of credit considered include installment loans, mortgage loans, finance accounts, retail store accounts and credit cards. Your mix of credit accounts for 10 percent of your credit score.

New Credit

FICO reports that opening several new accounts in a short period of time indicates a higher credit risk. Thus, if you open multiple new credit accounts quickly, your score may fall. New credit accounts for the remaining 10 percent of your overall score.

If your credit score is lower than you would like it to be, consider credit repair. To learn more, contact us at 877-842-5215 for credit tips and customized advice about how to repair credit.

FICO vs “Other” Credit Score

When you first start learning about your credit ratings, the terminology can be confusing. What is a FICO score? Is it the same as a credit score? Read on to learn a bit more about credit scores and how they’re derived:

Your FICO Score

Your FICO score is a three digit number between 300 and 850. A higher score is better. It started selling its scoring system to businesses in the late 1950s. It is based on reports from Experian, Equifax and Transunion, the three major credit reporting bureaus. These bureaus keep track of credit lines, debts and your payment history.

This score is used by 90% of financial institutions when determining your credit-worthiness when you are seeking a car loan, mortgage, credit card or other credit.

Other Types of Credit Scores

FICO, however, is not the only credit score out there. Each of the three major credit bureaus have their own scoring systems. Equifax offers ScorePower, a branded version of the a credit score, as well as their own Equifax Credit Score. Experian offers a score they call the PLUSScore. The three credit bureaus also collectively offer the VantageScore, which is intended to be a competitor to FICO. While FICO is the most commonly used score, banks and other institutions will also often consult one of the above, as well, when making credit decisions.

There are also a number of credit scores offered now that do not use credit reporting data. Scorelogix offers the JSS Credit Score, which assesses credit risk based on job history, income and the impact of the economy. L2C uses a potential borrower’s history of utility payments to determine credit risk. Because the FICO score only shows how well someone has done in the past, many banks are complementing these scores with alternative credit scores to predict whether a borrower will be able to continue to make on-time payments.

Things That Affect Your Score

All of the credit scoring companies take into account the same factors when determining your score. These include:

the length of your credit history
current debt
your payment history
the types of credit you use
how recently you looked for new credit

Each of the credit scoring companies weight these items differently by a few percentage points. Because of this, your credit score will vary by institution.

How to Get Your Credit Scores

All consumers in the US are entitled to free credit reports from all three bureaus once a year. However, you are not guaranteed free access to your FICO and other credit scores. The company has partnered with credit card companies to offer free monthly FICO scores on credit card statements. You can also get your VantageScore free from CreditKarma. By using these tools, you can make better decisions about what sorts of credit you qualify for and pick the best instruments for you.

Free FICO Scores?

Over half of all Americans say that they have no idea what their credit scores are. This isn’t surprising; until fairly recently, those scores and the factors that affected them were carefully guarded secrets. As consumer credit protections were made stronger by the FCRA and other laws, credit reporting agencies have gradually demystified what makes good credit.You can now get your credit reports free one time per year. But, to see your FICO score you have always had to pay a fee or sign up for a free trial of FICO’s monthly monitoring service. But now, FICO is partnering with banks to give you free access to your score as soon as a bank requests it. So far, Discover, Barclaycard and First Bankcard have signed on to the program, and more banks are expected to join. Discover will provide your FICO score each month on your statement. The service will be offered to Discover It holders starting this month and other Discover card members later on.

What is a FICO Score?

Your FICO score is a three digit number between 300 and 850. The higher your score, the better. The score is affected by a number of weighted factors: length of credit history, on-time payments, types of credit used, the amount you owe and how recently you looked for new credit. The exact formula is kept a secret, but, FICO has shared that some factors, such as payment history count more than others, such as new credit inquiries. FICO is the score used by 90% of banks to determine your credit worthiness. While the score will generally be similar to other credit scores such as your Vantage Score, they will not be quite the same.

Knowledge is Power

Knowing your credit score can help you make financial decisions. If, for instance, you have a score that is too low to qualify for a home loan, you can avoid applying before fixing your credit. That way, your score does not take an additional unnecessary hit through an inquiry for a loan that you cannot afford. By the same token, if you discover that you have an excellent FICO score, you can apply for a larger loan or one at a better interest rate.

By staying aware of your FICO score and your credit reports, you can fix potential credit problems before they rob you of opportunities. See if a financial service that you use will be offering the new free FICO scores. Check your score regularly to ensure that bad entries on your credit record are not dragging it down and that you are taking advantage of the opportunities that you have earned.

Fore more information on how FICO will be offering free credit scores contact our office at 617-265-7900.

Fico Scores Vs. Fako Scores – The real story

This is a very common subject we cover.

Client: “I pulled my credit report online and the score my loan officer pulled up was completely different?”

Yes, there are multiple credit scoring formulas. The industry standard remains FICO but consumers are no longer given access to all 3 FICO scores (experian, equifax & transunion).

Remember, if you are in the market for a mortgage or any other loan product you can always review the details of your report by going to www.annualcreditreport.com but remember, only your lender can access all 3 fico scores. Start the process early so if you find that your FICO scores are too low you can quickly work on getting things up to par.

The best ways to Review and Elevate Your Credit history

Why do some individuals obtain deals for pre-approved charge card as well as others don’t? What do automobile dealers find out about your monetary health and wellness that you don’t know? The response is your credit score.

Your credit report is a number produced by a mathematical formula to determine how most likely you are to pay your expenses. Based upon the info in your credit report guides from the three credit report agencies, Equifax, Experian, as well as TransUnion, your credit history has actually been a consider your capability to apply for lending and also good rates of interest for greater than twenty years. Lenders compare your credit rating guide with millions of others to determine your credit score.

While there are a selection of credit history approaches readily available to loan providers, the most extensively utilized is the FICO credit score. Based on a racking up system developed by Fair, Isaac & Co., FICO credit scores vary from about 300 to 800 points and also are offered to lending institutions by the 3 credit report bureaus. You additionally have access to your FICO scores but will be charged a fee by each credit report agency supplying your record.

Based on on Fair Isaac, the credit scores of the American public are broken down as follows:

-> ¢ 499 as well as listed below 1 percent
-> ¢ 500-549 5 percent
-> ¢ 550-599 7 percent
-> ¢ 600-649 11 percent
-> ¢ 650-699 16 percent
-> ¢ 700-749 20 percent
-> ¢ 749-799 29 percent
-> ¢ 800 and above 11 percent

A score of 720 or higher will probably get you the very best interest rates on a house mortgage. Your credit card company takes a look at your credit score to make a decision whether to raise your credit line or cost you a higher rate of interest. The higher your credit report, the better you look to lenders and also the lesser your rates of interest.

A number of factors affect your credit history including your repayment past, the length of your credit rating past, any sort of outstanding financial obligation, how long as well as exactly how typically you have actually had derogatory credit history information, such as charge-offs, personal bankruptcies, or collections, as well as the amount of credit report you are utilizing as compared to the amount of credit report offered to you.

Exactly how do you increase your credit rating? Well, the first factor to do is to purchase a copy of your credit rating report with the credit score consisted of from each of the three credit history agencies.

Next off, remember to pay your bills on time. It may seem like a little factor at the time you’re creating that month-to-month check, but an accumulation of timely payments states a whole lot to a possible lending institution searching for a trusted customer. Motivate repayments in the last few months could actually make a large distinction in your credit history.

While collections, personal bankruptcies, and also late payments have the biggest adverse result on your credit rating, your debt is an aspect. For this factor, settling your credit rating card financial obligation can really reduce your credit rating, as it increases the ratio of your financial obligation to your available credit history.

Extreme questions over a brief time period likewise damage your score. When lending institutions, banks, or charge card business examine your credit history report, the questions are videotaped. Several of these “difficult inquiries” in the same period could indicate to various other lending institutions that you are opening several accounts because of financial trouble.

If you discover that you have accounts on your guide that you really did not open, or your community documents such as tax liens or judgments that are not your own, you could be a victim of identity scams. Since of this criminal activity, it is up to you to deal with the damage that can take place to your credit rating. Understanding is your first step, yet when the choices end up on your guide, you have no alternative but to cleanse it up.

Generally, give yourself time to construct a great credit report as well as more time to fix major issues. The length of your credit rating past is an additional establishing consider a good credit score. Lenders would like to know that you are able to keep prompt repayments as well as good standing for a time frame. So inspect your records yearly, do your due persistance, and your rating could boost.

Based on the info in your credit records from the three credit bureaus, Equifax, Experian, and TransUnion, your credit score has actually been an aspect in your capacity to qualify for financings as well as great passion prices for more than twenty years. Your credit card firm looks at your credit report score to determine whether or not to increase your credit history limitation or fee you a greater passion rate. Well, the initial point to do is to order a duplicate of your credit history report with the credit score consisted of from each of the 3 credit report agencies. For this reason, settling your credit report card financial obligation can really decrease your credit rating, as it increases the ratio of your debt to your available credit report. When lending institutions, banking, or credit rating card companies inspect your credit record, the inquiries are tape-recorded.

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