VantageScore: The New Method of Calculating Credit Scores

VantageScore: The New Method of Calculating Credit Scores

The math behind your credit score is getting revamped, with changes big enough that they might alter the behavior of both cautious spenders as well as riskier borrowers. Those with low scores may benefit from the removal of civil judgments, paid medical collections, and any paid collection and tax liens.

The New Method “VantageScore”

The new method has already begun being implemented by VantageScore, a company created by the credit bureaus Experian, TransUnion and Equifax. It’s not as well-known as Fair Isaac Corp., who’s FICO score is used for the vast majority of mortgages. But VantageScore handled 8 billion account applications last year, so if you applied for a credit card, that score was likely used to approve or deny you.

Trending Data

Using what’s known as trended data is the biggest change. The phrase means credit scores will take into account the trajectory of a borrower’s debts on a month-to-month basis. So a person who is paying down debt is now likely to be scored better than a person who is making minimum monthly payments but has been slowly accumulating credit card debt.

Who Is Affected the Most

People with high credit scores may be affected the most since the goal of trended data is to see warning signs long before a borrower actually gets into serious trouble.

Reasoning Behind Removing Judgments, Tax Liens And Medical Debt

Taking civil judgments, medical debts and tax liens out of the equation comes after a 2015 agreement between the three credit bureaus and 31 state attorneys general. The argument was that civil judgments and tax liens -which can significantly hurt a person’s credit score – were often full of errors. Medical debt was being reported on a person’s credit report before there was time for insurance to reimburse.  People with those items on their credit reports now could see a bump of as much as 20 points. But it won’t help much if they also have negative marks like delinquencies and debts that have gone to collection.

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