If you use CreditKarma.com you might be familiar with the fact that the scores they report are sometimes 5 points off your actual FICO score and sometimes 50 points off. Well, get ready for more fun as the most popular credit score for consumers and least used credit score for lenders gets an overhaul.
VantageScore, a collaborative project from Experian, Equifax, and TransUnion gets it’s 4th upgrade and it will undoubtedly cause a lot of confusion.The VantageScore was created back in 2006 when the credit bureaus noticed a trend of consumers interest in their own scores. Instead of selling consumers scores which they had to buy from other companies – the credit bureaus now had their own scores they could profit off.
So what’s the big change you ask?
Well, this new iteration of the VantageScore will score how much of your debt you actually pay off every month. In short, consumers who pay their credit card debt off in full every month will see their scores increase while those that transfer the debt from month to month will see a decrease in their scores.
According to TransUnion, consumers who do not pay off their cards in full each month are 3 to 5 times riskier than people who pay in full each month. And VantageScore v4.0 will be the first score tracking and scoring this data.
What does this mean to you?
Pay your credit cards off every month to get the most out of your VantageScore and make sure that your credit card balances are under a 20% utilization when the creditor reports your information to the credit bureaus.
What else is new?
VantageScore v4.0 will completely ignore medical collections which are older that 6 months and have been paid by insurance. Unpaid medical collections will see a significant decrease in their impact to your score.
VantageScore v4.0 is set to be released Fall of 2017 so, you may notice some changes in your scores on CreditKarma.com, CreditSesame.com, Quizzle.com, etc… but, don’t forget one very important thing. At this point, those scores are completely useless because very few lenders actually use the VantageScore scoring model for their lending decisions.