Living with credit, New products, Protecting yourself

VantageScore rolls out ‘trendy’ new scoring model

Brady Porche

VantageScore will soon begin using “trended data” in its credit scores — a first among the major scoring models.

The credit scoring firm this month rolled out VantageScore 4.0, a new update to its formula that will be released in the fall. The new model will analyze trends in borrowers’ behavior, such as whether they typically pay off their balances in full each month or just the minimum and how their payment habits change over time.

Traditional credit scoring models represent only a “snapshot” of a consumer’s credit. Critics say this method fails to provide the most complete picture of a borrower’s credit behavior. For example, a cardholder who pays his balance in full each month could be at a disadvantage if a large balance is reported on the day before he plans to pay it off.

VantageScore touted its new update as the first credit scoring model used by the three major credit bureaus (Equifax, Experian and TransUnion) to incorporate trended data.

Trended data is already being used by mortgage lenders and in proprietary data products developed by the credit bureaus. Last year, mortgage-finance company Fannie Mae, which backs most new home loans in the U.S., began to require that lenders use trended data in loan decisions. Meanwhile, each of the three major credit reporting agencies sells its own trended data product to lenders. Equifax’s Dimension, Experian’s Trended Solutions and TransUnion’s CreditVision combine behavioral data with other metrics, such as checking account information, tax records and rent payment history.

VantageScore 4.0 will also align with major credit reporting changes being implemented by the bureaus under their joint National Consumer Assistance Plan and use machine learning to more accurately score consumers with thin credit files.

Introduced by the credit bureaus in 2006, VantageScore has offered an unconventional perspective on consumers’ creditworthiness by using more alternative data, which can include rent and utility payments and other bills. But it’s not the only game in town in that respect as credit scoring giant FICO introduced its own model that uses alternative data in 2015. FICO officials have also suggested that trended data could someday become part of the firm’s traditional scoring formula.

VantageScore’s formal adoption of trended data could be a game changer for many consumers. The company says more than 8 billion of its scores were used between 2015 and 2016 by over 2,400 lenders. But a move by FICO to use trended data in its monolithic traditional credit score — used in 90 percent of all lending decisions in the U.S. — would be a watershed moment.

For consumers, trended data could be a blessing or a curse. If you pay your balances in full each month, you may not be penalized for ringing up a big portion of your credit limit just before your next paycheck or bonus comes in. On the other hand, if an unexpected job loss or an emergency expense forces you to pay less than the full amount for a few months, it could give the appearance of backsliding.

But these are things you must now account for if you’re looking for a home loan anyway. And with VantageScore 4.0 on the horizon, trended data will soon be an even bigger part of the credit scoring landscape. Despite any definitive signals from FICO about radically changing its main model, there’s a decent chance that trended data will someday be the law of the land.

For some consumers, this may mean adopting more consistent payment patterns and paying a bigger portion of your bills each month than you have in the past. Others will finally get the full credit they deserve for being extra responsible borrowers.

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