New version of VantageScore coming

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grabiner
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New version of VantageScore coming

Postby grabiner » Thu Apr 20, 2017 9:47 am

VantageScore Solutions Debuts VantageScore 4.0 Credit Scoring Model is VantageScore's announcement of a new version to come out this fall.

While mortgages still need to be scored by FICO under Fannie Mae/Freddie Mac rules, VantageScore is used by a lot of lenders for other types of credit. And FICO may also make similar changes in the future. Key changes:

Scoring of amounts owed and utilization will now use balance trends, not just a snapshot. Logically, if you owed $10,000 last year and have paid it down to $5000 this year, you are a better risk than someone who owed $2000 last year and has had the balance owed increase. (Until details come out, it's not clear how this will affect people who charge a lot and pay in full every month.)

The importance of non-credit debts, such as medical collections, civil judgements, and tax liens, will be reduced. Part of the reason is a National Consumer Assistance Plan by the credit bureaus to insure more accuracy in these reports; these may be eliminated from consumer credit files if they do not meet data quality standards.

In addition, medical collections less than six months old will be ignored, as it is common for a medical bill which should be paid by insurance to be incorrectly sent to collections. (This is a significant benefit for consumers, as it reduces the leverage which medical providers can use to get a bill paid before insuranc ehas handled it.)

A CNBC article also says that total available balance may be considered a negative; if you have $100,000 in available credit, you would be capable of going $100,000 into debt on your existing accounts. However, it contradicts VantageScore's statement on the treatment of non-credit debts, so I don't know how much to trust it.
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Re: New version of VantageScore coming

Postby michaeljc70 » Thu Apr 20, 2017 9:51 am

I read that older cards can hurt your score more due to accessible credit with the new methodology. However, I didn't hear that the "age of credit" factor would be changed (which is the only reason I keep some older accounts).

I've always thought it made no sense that replacing a 5 year old car with a $10k limit with a new card with a $10k limit would harm your credit.

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Re: New version of VantageScore coming

Postby grabiner » Thu Apr 20, 2017 6:55 pm

michaeljc70 wrote:I've always thought it made no sense that replacing a 5 year old car with a $10k limit with a new card with a $10k limit would harm your credit.


Credit scoring only knows what happened, not why. Replacing an old card by a new card with better terms is a neutral move. But if the old card considered you a high risk and canceled the card, or raised the interest rate, then replacing it with a new card is a negative.
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Re: New version of VantageScore coming

Postby michaeljc70 » Thu Apr 20, 2017 7:18 pm

grabiner wrote:
michaeljc70 wrote:I've always thought it made no sense that replacing a 5 year old car with a $10k limit with a new card with a $10k limit would harm your credit.


Credit scoring only knows what happened, not why. Replacing an old card by a new card with better terms is a neutral move. But if the old card considered you a high risk and canceled the card, or raised the interest rate, then replacing it with a new card is a negative.


I don't believe interest rates play into your credit score. What if you don't carry a balance? That doesn't play into it directly either, but why would interest rate matter? I've looked at my credit report 100 times and never seen an interest rate on there.

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grabiner
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Re: New version of VantageScore coming

Postby grabiner » Thu Apr 20, 2017 7:29 pm

michaeljc70 wrote:
grabiner wrote:
michaeljc70 wrote:I've always thought it made no sense that replacing a 5 year old car with a $10k limit with a new card with a $10k limit would harm your credit.


Credit scoring only knows what happened, not why. Replacing an old card by a new card with better terms is a neutral move. But if the old card considered you a high risk and canceled the card, or raised the interest rate, then replacing it with a new card is a negative.


I don't believe interest rates play into your credit score. What if you don't carry a balance? That doesn't play into it directly either, but why would interest rate matter? I've looked at my credit report 100 times and never seen an interest rate on there.


Interest rates do not affect your credit score (other than that they affect your amount due).

My point is that closing one card and opening another could be a neutral or negative indication of your ability to handle credit, depending on the reason for the closure. Since the credit scoring model doesn't know which was the case, your score will decrease if you do this.
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Re: New version of VantageScore coming

Postby michaeljc70 » Thu Apr 20, 2017 7:32 pm

grabiner wrote:
michaeljc70 wrote:
grabiner wrote:
michaeljc70 wrote:I've always thought it made no sense that replacing a 5 year old car with a $10k limit with a new card with a $10k limit would harm your credit.


Credit scoring only knows what happened, not why. Replacing an old card by a new card with better terms is a neutral move. But if the old card considered you a high risk and canceled the card, or raised the interest rate, then replacing it with a new card is a negative.


I don't believe interest rates play into your credit score. What if you don't carry a balance? That doesn't play into it directly either, but why would interest rate matter? I've looked at my credit report 100 times and never seen an interest rate on there.


Interest rates do not affect your credit score (other than that they affect your amount due).

My point is that closing one card and opening another could be a neutral or negative indication of your ability to handle credit, depending on the reason for the closure. Since the credit scoring model doesn't know which was the case, your score will decrease if you do this.


How is closing a card with zero balance and opening a new one with zero balance an indication of credit worthiness given they don't know the interest rate or terms?

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Re: New version of VantageScore coming

Postby 8foot7 » Thu Apr 20, 2017 7:46 pm

The whole system is incredibly broken. And as it happens precious few lenders use VantageScore in lending decisions

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Re: New version of VantageScore coming

Postby michaeljc70 » Thu Apr 20, 2017 7:51 pm

8foot7 wrote:The whole system is incredibly broken. And as it happens precious few lenders use VantageScore in lending decisions


Many credit card vendors use VantageScore. The system is "unique". A credit score doesn't really differentiate between someone that pays off monthly vs carries a balance. Personally, I don't worry about it. My scores are 820+. Pay your bills on time and it probably won't be a problem.

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Re: New version of VantageScore coming

Postby grabiner » Thu Apr 20, 2017 7:57 pm

michaeljc70 wrote:
8foot7 wrote:The whole system is incredibly broken. And as it happens precious few lenders use VantageScore in lending decisions


Many credit card vendors use VantageScore. The system is "unique". A credit score doesn't really differentiate between someone that pays off monthly vs carries a balance. Personally, I don't worry about it. My scores are 820+. Pay your bills on time and it probably won't be a problem.


VantageScore 4.0, which uses balance history, might do that. If your credit card balances over the last six months are $2000, $300, $1200, $600, $900, $2500, you are probably paying off the balance in full every month even though this month's balance is high. If they are $300, $600, $900, $1200, $2000, $2500, you are probably charging more and more to the card and not paying down the balance.
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Re: New version of VantageScore coming

Postby michaeljc70 » Thu Apr 20, 2017 8:02 pm

grabiner wrote:
michaeljc70 wrote:
8foot7 wrote:The whole system is incredibly broken. And as it happens precious few lenders use VantageScore in lending decisions


Many credit card vendors use VantageScore. The system is "unique". A credit score doesn't really differentiate between someone that pays off monthly vs carries a balance. Personally, I don't worry about it. My scores are 820+. Pay your bills on time and it probably won't be a problem.


VantageScore 4.0, which uses balance history, might do that. If your credit card balances over the last six months are $2000, $300, $1200, $600, $900, $2500, you are probably paying off the balance in full every month even though this month's balance is high. If they are $300, $600, $900, $1200, $2000, $2500, you are probably charging more and more to the card and not paying down the balance.


I get that. But my balances vary greatly- even paying off every month (expenses vary).

The main problem is, your cc balances may be going down and so is your income. it just is not a comprehensive analsysis. Income plays no factor into credit score. Nor does net worth! Obviously there are practical reasons for this. But without income/NW, the scores have limited meaning. It is basically if you pay on time and are close to your credit limit.

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Re: New version of VantageScore coming

Postby grabiner » Thu Apr 20, 2017 9:09 pm

michaeljc70 wrote:The main problem is, your cc balances may be going down and so is your income. it just is not a comprehensive analsysis. Income plays no factor into credit score. Nor does net worth! Obviously there are practical reasons for this. But without income/NW, the scores have limited meaning. It is basically if you pay on time and are close to your credit limit.


And that is why credit decisions are based on more than the score. Your score says how likely someone with your credit profile will be to default on a new loan. The lender also looks at other information on your form, such as the relation of the loan payments to your income, and the stability of your income, when deciding whether to approve the loan and what rate to offer.

I don't ever remember being asked for net worth on a loan application, except for a mortgage. When I applied for a car loan from two different credit unions, neither credit union cared that I had enough stock to pay for the car outright. (I didn't want to sell the stock because that would have led to a tax bill of more than the loan interest.) The first credit union denied me the loan because it wouldn't offer a loan to anyone without six months at his or her present job. The second credit union offered me the loan.
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Credit Score Changes For Bogleheads

Postby Leesbro63 » Fri Apr 21, 2017 10:16 am

[Thread merged into here, see below. --admin LadyGeek]

I THINK there's something actionable here for us, but not sure what. It would appear that those of us with top credit scores might be negatively affected:

http://www.cnbc.com/2017/04/19/major-ch ... lated.html

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Re: Credit Score Changes For Bogleheads

Postby KT785 » Fri Apr 21, 2017 10:18 am

Seems like this is already being discussed in this thread:

viewtopic.php?f=2&t=217040&newpost=3336737

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Re: Credit Score Changes For Bogleheads

Postby Leesbro63 » Fri Apr 21, 2017 10:24 am

You're right! Didn't see that. Perhaps the moderators can remove my redundant post here.

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Re: New version of VantageScore coming

Postby flamesabers » Fri Apr 21, 2017 11:06 am

michaeljc70 wrote:I read that older cards can hurt your score more due to accessible credit with the new methodology. However, I didn't hear that the "age of credit" factor would be changed (which is the only reason I keep some older accounts).


So is the solution to this problem scaling down the credit limit on older unused cards to a bare minimum? I wouldn't be opposed to this so long as creditors make it easy to cut back on the credit limits on your cards.

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Re: New version of VantageScore coming

Postby michaeljc70 » Fri Apr 21, 2017 11:24 am

flamesabers wrote:
michaeljc70 wrote:I read that older cards can hurt your score more due to accessible credit with the new methodology. However, I didn't hear that the "age of credit" factor would be changed (which is the only reason I keep some older accounts).


So is the solution to this problem scaling down the credit limit on older unused cards to a bare minimum? I wouldn't be opposed to this so long as creditors make it easy to cut back on the credit limits on your cards.


I'm going to watch and see what happens. I just checked an my FICO is 828 and VantageScore is 820 so a few points isn't going to matter.

I recently closed a few older accounts I don't use and I churn credit cards for bonuses and haven't noticed a big impact on my credit score.

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Re: New version of VantageScore coming

Postby LadyGeek » Fri Apr 21, 2017 12:33 pm

FYI - I merged Leesbro63's thread into here.

You can get our attention quicker by reporting the post (the "!" in the top right corner). One of the reasons is "Duplicate thread." (Thanks to the member who reported the post.)
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