VantageScore Solutions has made significant progress since launching the Vantage credit score. It has proved particularly effective in making inroads into providing scores for many who were previously excluded from the credit scoring system due to a variety of circumstances. The company has now launched its improved VantageScore 2 which introduces some significant changes to the way in which the VantageScore is analytically compiled.
A key benefit of the VantageScore for consumers is that the “model applies the same algorithm to each of the three credit reporting company’s data”. Consumers will thus experience less variance between their credit scores from the three major credit bureaus, Experian, Equifax and TransUnion.
Consumers will still experience variances between their FICO credit score and their Vantage credit score as the scoring numbers remain unaligned. VantageScores range from 501-990, compared with the FICO score range of 300-850. This will still provide confusion to consumers who do not know which scoring model a lender is applying.
VantageScore Solutions has made significant adjustments to its scoring algorithm and replaced the core VantageScore with VantageScore 2. The major changes are an increase from 10% to 30% in the importance given to recent credit, and a drop in importance given to credit history.
The VantageScore 2 will now score recent credit at 30% by considering the number of recent credit inquiries and new accounts opened. Recent payment history will account for 28% of the score whilst the percentage of utilized credit will account for 23%. The depth of credit is now just 8% and includes the length of credit history and the type of credit. The amount of reported balances takes 9%, whilst the amount of available credit accounts for just 1%.
The crucial progress which VantageScore solutions has made is in drawing a distinction between those with a poor credit history and those with little or no credit history. The latter are generally:
1) Young adults starting careers
2) New immigrants
3) Recently divorced or widowed people with no credit in their own names.
4) Those that choose not to utilize credit
5) Previous bankrupts
The company has been able to identify prime borrowers amongst these groups and provide credit scores, thus increasing the pool of potential customers for financial institutions. This in turn reduces the level of underwriting necessary for a company before it makes a decision on an individuals potential credit risk.
VantageScore2 will be a considerable asset to lenders who are increasingly using the VantageScore model alongside the FICO score model.