Credit Scoring System Will Soon Be Less Terrible
Our credit rating system is flawed , but the good news is that the mighty are actively working to find better solutions. This fall we will see big changes in how one credit rating is calculated.
That’s right: you don’t just have one credit rating . You actually have several, and while the overall FICO rating is the main one, many lenders, account providers and other services also use something called VantageScore.
Earlier this month, VantageScore Solutions, the company behind VantageScore, announced some changes that will affect consumers.
First of all, the new model will look at your credit over time using trend data. Rather than just assessing your credit based on one particular snapshot, the new assessment will take into account how your credit behavior has changed over the months. It will calculate whether you are actually paying off your debt or just accumulating it. Of course, this may be a disadvantage for some consumers, but it is good news for consumers who are actively working to pay off their debt .
A spokesperson for VantageScore Solutions told The Washington Post that the change is intended to address a difficult credit situation:
The changes also address a problem that sometimes affects people who have good credit ratings in general but may temporarily have more debt due to a large purchase. Richardson said some consumers could have a credit rating downgrade, such as after booking an expensive flight, even if they planned to redeem their card in full and on time. The new model, however, will take into account the fact that this customer has a history of maintaining low card balances and therefore will not have that much impact on the account.
The new model also excludes some publicly available information such as liens and court decisions .
These changes are not a panacea, and again, many lenders don’t even pull out your VantageScore. As the Washington Post points out, most mortgage lenders use your FICO rating. However, many other organizations use VantageScore, from credit card issuers to car loan lenders and apartment management companies, so this is a step in the right direction.