By: Stella Katsipoutis
Later this year, some big changes are going to be made to how one consumer credit scoring model calculates your credit score—and it could impact you. The changes were announced by VantageScore, a company that was created about 10 years ago by the big three credit bureaus (Equifax, Experian and TransUnion) to compete with the Fair Isaac Corporation’s FICO® scoring method.
FICO has been around for many years and is still used by most lenders, like VyStar, when making mortgage and consumer loan decisions. VantageScore, on the other hand, is relatively new and typically utilized by free credit score sites like Credit Karma, Credit Sesame and WalletHub. Financial institutions and credit card companies often use VantageScore when approving credit card applications, and they sometimes offer the score for free to those who have their credit cards.
To help you better understand the changes that are coming with the new scoring system—also known as VantageScore 4.0—and how they might affect you, let’s first take a deeper look at the differences between VantageScore and FICO.
If you are young or have very little credit history, you probably have a VantageScore. Unlike FICO, VantageScore uses alternative data—like rent, utilities and phone bill payment history—to estimate your credit score. They also look further back into your history in order to build your score: 24 months, to be exact. On the other hand, if you have an established credit history with loans and credit cards, you probably have a VantageScore and a FICO score—and they are probably similar.
FICO, however, is the only score used by government-backed mortgage lenders, like Fannie Mae and Freddie Mac—and therefore most mortgage lenders—to determine your eligibility for a home loan and interest rates. VantageScore is rarely used by lenders when it comes to mortgage loans.
If you want to simply keep track of your credit score over time for free, referring to your VantageScore will probably work best for you and give you a good idea of where your credit stands. Obtaining your FICO score requires that you pay a fee. However, since FICO scores are most often used by mortgage lenders, like VyStar, it might be worth paying to get yours if you anticipate applying for a mortgage loan and buying a home in the near future.
Now on to the big question: How is VantageScore changing, and what does that mean for me? In a nutshell, the VantageScore 4.0 scoring system features changes in three key areas:
While these new changes have the potential to impact your VantageScore, it is important to note that the changes will not affect your FICO credit score at this time.
Please remember: While the credit bureaus generally keep a good record of your credit repayment history, they can sometimes include errors. That’s why it’s highly recommended that you check your credit report at least once a year—so you can spot these mistakes early, request a correction from the creditor, and get your credit score where it should be.
You are entitled to receive one free credit report from each of the three credit bureaus—Equifax, Experian and TransUnion—every year. It is highly recommended by credit experts that consumers request one credit report every four months from one of the big three credit bureaus (e.g., one from Equifax in February, one from Experian in June, and one from TransUnion in October). This would account for the three free annual credit reports that consumers are entitled to on an annual basis. To get your free credit reports, all you have to do is visit AnnualCreditReport.com and follow the easy on-screen instructions to fill out your application.
The content provided in this blog consists of the opinions and ideas of the author alone and should be used for informational purposes only. VyStar Credit Union disclaims any liability for decisions you make based on the information provided.