VantageScore 4.0 is a new credit scoring model that mortgage lenders may start utilizing as a substitute for traditional FICO scores. It is similar to the existing FICO scoring model, as it provides a score between 300 and 850; however, the way the score is determined is different.
Credit scores are derived by using a scoring model to help lenders determine the likelihood that a consumer will repay a loan. Generating a score that accurately predicts this is where things get tricky. Check out this blog to learn more about what goes into credit score calculations.
A key difference with VantageScore 4.0 is the use of “trended data.” Historically, credit scores were just a snapshot of your credit history. Your utilization rate at the time your credit was run played a large role, whereas trended data will consider your credit habits over an extended period of time.
Another change is how tax liens, judgments, and medical collections are handled. Previous scoring models were unforgiving whenever there were any of these derogatory accounts, whereas the VantageScore 4.0 looks to give more leeway, specifically to more recent accounts. For example, the new scoring model understands that consumers may be waiting for their insurance company to pay a medical bill.
Lastly, VantageScore 4.0 looks to provide scores to consumers who were previously “un-scorable.” This includes consumers who have not had an update to their credit profile in the last six months or even have no trade lines. By utilizing alternative data, like rent and utility payments, VantageScore 4.0 could help generate credit scores for those who previously would not have had one.
While VantageScore 4.0 looks to improve and expand credit scoring, it is important to note that it has not yet been implemented in the mortgage lending world. Traditional FICO tri-merge credit reports will continue to be utilized. Once the VantageScore 4.0 is implemented, it is important to note that lenders will have to decide to use either the traditional FICO scoring or the new VantageScore 4.0 model. You won’t be able to mix and match the two.
Regardless of which scoring model is utilized in the future, it is important that you do everything in your power to keep your credit profile strong. Be mindful of the debt you take on, always make timely payments, and keep your utilization rate down. To learn more, check out our blogs on Easy Ways To Improve Your Credit Scores and How To Build Your Credit Scores.
If you’re planning to buy a home or just want some guidance on how to improve your credit scores, give us a call at (760) 930-0569 to speak with one of our Mortgage Loan Originators. We’re here to talk through your goals and help you figure out which loan programs could be the perfect fit for your needs.
