New VantageScore Model to have significant impact...

[figueroaw]

Currently, debts that go into collections, even if they are paid off, are factored into all credit scores for up to seven years, said John Ulzheimer, president of consumer education for SmartCredit. But VantageScore 3.0 will no longer factor these accounts into a consumer's score if the debt was paid in full or settled, just as long as the balance is zero.

 

http://money.cnn.com/2013/03/11/pf/credit-score/index.html?iid=HP_LN

Edited March 11, 2013 by stroked89coupe

[NomNomNom]

That's great and all, but Vantage Score use for lending, at least in my experience, is rare :/

 

Sent from my SCH-I535 using Tapatalk 2

 

 

[inmytree2003]

http://money.cnn.com/2013/03/11/pf/credit-score/index.html?iid=HP_LN&hpt=hp_t2

 

Currently, debts that go into collections, even
if they are paid off, are factored into all credit scores for up to
seven years, said John Ulzheimer, president of consumer education for
SmartCredit. But VantageScore 3.0 will no longer factor these
accounts into a consumer's score if the debt was paid in full or
settled, just as long as the balance is zero.

Edited March 11, 2013 by stroked89coupe
Removed Outbound Link

[canondvd]

Thanks for the link, I wouldn't have seen this article otherwise.

[stroked89coupe]

Topics Merged.

[encoder]

Great. Since my guess is that 90% of the people who think they know their credit score actually know only a Fako, this is just going to give millions of people a false sense of better credit than they actually have. This could make for some serious deltas between a Fako and Fico -- even moreso than already exist. A dozen paid collections will tank your Fico but you could have a 700+ Fako now with this change. And that person is going to be in for a shock when they seek financing.

[dvdcoll]

Great. Since my guess is that 90% of the people who think they know their credit score actually know only a Fako, this is just going to give millions of people a false sense of better credit than they actually have. This could make for some serious deltas between a Fako and Fico -- even moreso than already exist. A dozen paid collections will tank your Fico but you could have a 700+ Fako now with this change. And that person is going to be in for a shock when they seek financing.

 

BINGO

[hairmetal4ever]

Well, it's not necessarily to call Vantage a "FAKO" since it's one of the "official" scores...but in the sense that nobody really uses it...it is.

[foeplay]

I wish Vantage scores became the norm.

[encoder]

That's exactly what a Fako is, Hair. A product from the CRAs -- the Plus, Vantage, TransRisk, whatever. It's not a Fico, it's not used by lenders, it's a Fako.

[cashnocredit]

VantageScore 3.0 is going to be influential in major ways. It is a frontal assault on FICO.

 

It is a validated credit score with more public information about it's metrics and predictability than FICO publishes. But it has a new killer angle. An angle that will likely force FICO to follow suit. Not including paid collections as negatives will be highly appealing to many decisionmakers in the industries.

 

Thgere is little question FICO scores are inaccurate as regards paid v unpaid CAs. Treating them both the same is nuts on its face but done because the numbers of people with only paid CAs is pretty small.

 

1. Banks will like the ability to open up credit to new customers so long as their risk models check out.

2. CAs will like this since it incents people to pay CAs if they want to recover their credit quicker. Higher CA ROI.

3. In turn banks will like it because it means they can probably get more when they sell their C/O accounts

 

I would love to be a fly on the wall in VantageScore presentations to bankers.

 

VantageScore 3.0 isn't targeted at selling scores to consumers. They want to sell them to lenders and break FICO's monopoly. FICO is sweating bullets.

[Credit Mama]

Let them sweat, its no way in the hell a company like EX. should be so hard to get in terms of obtaining a FICO.

[NomNomNom]

Is FICO really sweating bullets? Vantage is a joint effort by the big 3, and it still doesn't seem to have much market share.

 

It was started back on v1 in 2006 with the idea to take a share of the market. Here we are closing in on v3 and I have never encountered a lender, worked with a lender, or banked with a bank that used it.

 

I'm all for dreaming and hoping, but...I just don't see it.

[encoder]

I don't know, Cash.

 

The value of Fico is that it's proven a reliable predictor of default rates. Lenders seem hesitant to even switch to different versions of the Fico product because of the way it affects their risk, let alone a whole new scoring product.

 

This is a multivariate problem that is difficult to model. Impossible, really, to model perfectly.

Edited March 11, 2013 by encoder

[OwNt]

I find VantageScore to be less desirable than FICO based on its scoring. Depending on the version, you can lose 9-15% of your score just by letting large statements cut. I would hardly call that an accurate indicator of credit worthiness.

 

Source: http://www.experian.com/consumer-products/vantage-score.html

Edited March 11, 2013 by OwNt

[woogs]

I find VantageScore to be less desirable than FICO based on its scoring. Depending on the version, you can lose 9-15% of your score just by letting large statements cut. I would hardly call that an accurate indicator of credit worthiness.

 

Source: http://www.experian.com/consumer-products/vantage-score.html

 

Likewise. My statements often close with a $50k - $60k balance and I watch my Vantage drop a lot. If I plan on applying for a loan, I will pay off before statement closes, but otherwise I will keep the lower score and keep the "free loan" from the credit card until the day the payment is due.

[moosetracks]

Interesting that Vantage claims that many creditors use their score right now. Not a single creditor of mine uses it all use the various FICO models.

[cashnocredit]

I don't know, Cash.

 

The value of Fico is that it's proven a reliable predictor of default rates. Lenders seem hesitant to even switch to different versions of the Fico product because of the way it affects their risk, let alone a whole new scoring product.

 

This is a multivariate problem that is difficult to model. Impossible, really, to model perfectly.

 

I don't think there is an immediate problem for Fair Isaac but there is a longer term one. Version 2.0 of the credit bubble is well under way and it is increasingly hard to find fresh, warm bodies. This opens up a new source of unfairly dinged potential customers without opening up the floodgates to high risks.

 

Also , the incentives are aligned in such a way as to increase profits from those banks that start drawing from this group. FICO will either have to provide evidence that paid CAs are as bad as unpaid ones, include the factor in their own scores, or get left behind.

 

VantageScore has a powerful PR spin as well. The argument that consumer's shouldn't be treated as badly (if not worse) after paying a CA is a compelling one.

[cashnocredit]

Interesting that Vantage claims that many creditors use their score right now. Not a single creditor of mine uses it all use the various FICO models.

What VantageScore doesn't say is that banks use only their score. There is evidence that many banks are testing the waters and using VantageScore but only on a small subset of customers. They do this with FICO score variants as well. It's a "Challenger - Champion" process of change.

[SomeGuyInCA]

Honestly FICO should adopt a similar model. The current system of penalizing a consumer for mistakes and outright disasters in their personal lives, even when they have done the right thing and paid the debt is simply nuts as Cash stated. It does not encourage consumers to repay debt. Quite the contrary, it encourages savvy consumers to walk away from their debts because there is literally no upside to them in honoring those obligations. FICO's models assume that there is NO difference in the default risk between a consumer who has paid their accounts in full after a setback and those who have not done so, and I sincerely doubt this is an accurate depiction of actual risk.

 

Banks and other lenders should be pressuring FICO to change, because FICO's model is quite literally costing them money; first because the lenders must pay to use it to appraise risk... and second because it discourages consumers from cooperating in efforts to recover losses.

[cashnocredit]

Honestly FICO should adopt a similar model. The current system of penalizing a consumer for mistakes and outright disasters in their personal lives, even when they have done the right thing and paid the debt is simply nuts as Cash stated. It does not encourage consumers to repay debt. Quite the contrary, it encourages savvy consumers to walk away from their debts because there is literally no upside to them in honoring those obligations. FICO's models assume that there is NO difference in the default risk between a consumer who has paid their accounts in full after a setback and those who have not done so, and I sincerely doubt this is an accurate depiction of actual risk.

 

Banks and other lenders should be pressuring FICO to change, because FICO's model is quite literally costing them money; first because the lenders must pay to use it to appraise risk... and second because it discourages consumers from cooperating in efforts to recover losses.

 

Exactly, and well stated. It's in the interest of just about everyone. Consumers, Banks, and even CAs. Only one potential loser if they don't jump on the idea: Fair Isaac. But then I've never been fond of monopolies. When interests align across constituencies stuff happens.

[hrguy]

It is interesting that they are changing to the fico ranges. I wonder how long before the CMS's start using it. When are they slated to roll this out?

[cashnocredit]

It is interesting that they are changing to the fico ranges. I wonder how long before the CMS's start using it. When are they slated to roll this out?

The original 500-999 ranges were designed to correspond to familiar A-F Grading as well as avoid FICO scoring for legal purposes. FICO recently lost a court decision over their ability to claim their scoring range and prohibit others from using it. So it makes sense to switch to something everyone is familiar with. Habits and inertia are hard to change.

[cashnocredit]

Another interesting tidbit. It has been pointed out that all CRAs now record "fine grain" data from many creditors. VantageScore 3.0 is using this data.

 

http://blog.credit.com/2013/03/new-credit-score-model-looks-to-transform-lending/

 

 

For example, the scoring model doesn’t simply look at whether or not a student loan payment was made on time, but it can factor in how many days in advance of the payment due date that the payment was actually made.

 

So by using this higher level of ganularity VantageScore 3.0 claims better overall assessments even though they exclude paid CAs. It's worth noting that this does not affect OC lates or C/Os.

[hrguy]

Another interesting tidbit. It has been pointed out that all CRAs now record "fine grain" data from many creditors. VantageScore 3.0 is using this data.

 

http://blog.credit.com/2013/03/new-credit-score-model-looks-to-transform-lending/

 

 

For example, the scoring model doesn’t simply look at whether or not a student loan payment was made on time, but it can factor in how many days in advance of the payment due date that the payment was actually made.

 

So by using this higher level of ganularity VantageScore 3.0 claims better overall assessments even though they exclude paid CAs. It's worth noting that this does not affect OC lates or C/Os.

Good info Cash, this could be a double-edged sword. Im sure those who pay on or a day before the due date would be considered riskier in this model.