A New Credit Score Is Coming: What You Need to Know About VantageScore 4.0

A new credit score will be finding its way to a credit bureau near you very soon.

VantageScore Solutions, a joint venture of the three credit reporting agencies (CRAs), announced that the fourth generation of its credit scoring software will be released in the fall of 2017. The new score has been aptly named VantageScore 4.0.

Why should consumers and lenders get excited about another new credit score — one that will stick to its existing range of 300 to 850?

For starters, this new credit scoring model is slated to get some very meaningful enhancements. New features include consumer friendly treatment of medical collection accounts, less reliance on tax liens and judgments, and the ability to consider trended data in the calculation of credit scores.

The Biggest Enhancement: Trended Data

As mentioned above, there are several meaningful changes being introduced with the release of VantageScore 4.0. Arguably the biggest breakthrough featured in the new scoring model, though, is the consideration of trended data and its influence over your scores. This marks the first time a tri-bureau credit score (one available from all three credit reporting agencies) will measure trended data.

What is trended data? Several years ago the CRAs began to include historical information about your credit card accounts on credit reports, and this information has been named trended data. Prior to the inclusion of this information, it was impossible to discern whether a consumer paid off their credit cards each month and used them again, or whether a consumer rolled an outstanding balance from one month to the next.

It was also impossible to know what someone’s balances and credit limits were in prior months. Once trended data was included on credit reports, lenders and credit scoring models could now access a consumer’s historical information for the previous 24 months.

VantageScore 4.0 is a big deal because it will be the first credit scoring model to harness the predictive power of trended data. Although trended data has been included on credit reports for several years, there have been no credit scoring models that considered the information.

Trended data is so predictive, in fact, that that consumers who do not pay off their balances in full each month are reported to be three to five times riskier than consumers who pay in full each month.

When and Where Will VantageScore 4.0 Be Used?

VantageScore’s newest model will not be commercially available until fall of 2017. However, even once the score is officially released, that doesn’t mean you’ll immediately begin to see VantageScore 4.0 whenever a lender pulls your credit in a few months.

It can take time for a new score version to permeate the lending environment. This is true for any scoring system, including FICO scores.

Although many lenders are certain to be interested in VantageScore 4.0’s improved predictive ability, it will still likely take some time before the model is adopted by lenders.

It’s extremely costly for lenders, not to mention time consuming, to convert to a new credit scoring model. Add to these obstacles the fact that the government-sponsored enterprises (GSEs) – Fannie Mae and Freddie Mac – currently mandate the use of a much older version of the FICO credit scoring model in mortgage loan applications.

Consumers, however, may be able to access the new VantageScore credit scores much sooner, even if lenders don’t adopt the new scoring model right away. Many online credit score providers such as Credit Sesame and Credit Karma have partnerships with credit bureaus that allow them to give away free VantageScore credit scores. And while I have no insider information on this topic, I do believe the new VantageScore 4.0 credit score will be available for consumers to see via one of these websites some time during 2017.

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