BALTIMORE, MD (May 25, 2017) — A credit score is like a financial fingerprint. The information listed in a person’s credit report helps creditors and other businesses distinguish how financially reliable they are. Consumers may have several different credit scores: FICO and Vantage just to name two. Taken together, they affect their ability to qualify for credit, loans, rent, utilities, insurance, and certain jobs. They may also impact the interest rate and other terms a person receives. At least two major credit scoring changes are expected later this year.
Consumers will begin to experience these changes in July when Vantage debuts its newest scoring system, VantageScore 4.0. Vantage was developed by the three major credit reporting companies (Experian, Equifax, and TransUnion). A rival of FICO, it has experienced rapid growth and is already used by many free educational credit score sites like CreditKarma. Nonprofit Guidewell Financial President and CEO Helene Raynaud notes, “While mortgage lenders still rely on FICO, 20 of the top 25 financial institutions use some version of the Vantage score in their underwriting decisions. That’s why these credit scoring changes are likely to affect many of us.”
Trending Data Replaces Static Data
Today credit scores heavily rely on “static data.” This means they simply take and analyze a snapshot of a person’s current financial situation. If they recently missed a payment, their credit score is likely to drop. If they have recently paid off a debt, it’s likely to rise. The new Vantage scoring system won’t just look at a person’s current financial activity. Instead, it will provide creditors with an extended view of their financial behavior by examining their bill payment and debt use from month-to-month.
This change should not affect consumers who regularly pay their debts on time. However, it may lead to a lower score for those who only pay the minimum monthly balance on their credit cards each month. It may also negatively affect consumers who have multiple credit card accounts open – even if these accounts are up to date and only kept to accrue reward points. Why? Because open accounts represent a ready opportunity to get further in debt.
Less Emphasis on Medical Collections, Civil Judgments, and Tax Liens
The Consumer Financial Protection Bureau (CFPB) believes that medical expense accounts for 52% of all overdue debt, even though a substantial portion of this debt is ultimately repaid through insurance. The new Vantage score version will only count medical collection items that are six months or older, thus allowing more time for insurance payment processing. Other medical collection data will likewise have a less negative effect than nonmedical debt data, and new reporting standards have been built-in to help ensure that public record debt entries such as civil judgements and taxi liens are accurate.
Raynaud says, “We applaud these new consumer credit score protections. They will help guarantee that creditors receive a clearer financial picture and may make it easier for consumers to build a positive credit score.”
Guidewell Financial Solutions’ services are available in person or by phone.l To learn more, visit the agency website at www.guidewellfs.org or call 1-800-642-2227 for an appointment. Click here to view the agency’s 51st Anniversary infographic.
Guidewell Financial Solutions (also known as Consumer Credit Counseling Service of Maryland and Delaware, Inc.) is an accredited 501(c)(3) nonprofit agency that helps stabilize communities by creating hope and promoting economic self-sufficiency to individuals and families through financial education and counseling. Maryland License #14-01 / Delaware License #07-01
