How the credit bureaus are casually just changing the credit formulas

Last month, VantageScore Solutions announced the completion of VantageScore 4.0, its fourth-generation credit score. VantageScore, a rival to FICO, has experienced rapid growth and supplies the credit score used by most leading free credit score sites, including CreditKarma. Lenders are also increasingly turning to VantageScore, with 20 of the top 25 financial institutions using the score in some of their underwriting decisions. With the new version of the credit score comes three changes that can have a big impact on millions of Americans:
  • Less emphasis on medical collections and other derogatory and public-records data.
  • More reliance upon “trended data” rather than static data.
  • Use of machine learning to create better scores for people with limited credit data.
Less Emphasis On Medical Collections And Other Derogatory Data

52% of all overdue debt on credit reports is from medical expenses. Medical debt appears as a collection item, which can easily take 50 points (or more) off your score and make your life a lot more expensive.A significant portion of medical debt ultimately gets paid late by insurance companies. The delay is often the fault of cumbersome administrative and billing processes, yet the individual’s credit score can get negatively impacted regardless. To say this could change the economic standing of low income person would be an understatement, it could literal save them thousands and tens of thousands of dollars in interest payment on car loans and mortgages.

Trended Data To Play A Bigger Role
Today, static data plays a big role in credit decisions. Static data is just a simple way of saying “data from today.” A great example is utilization, a vital component of most credit scores. Utilization is your current balance divided by your total credit limit. If you have a $100 balance and a credit limit of $1,000 your utilization is 10%. Historically, utilization has been used as a static variable. The credit scoring industry is recognizing that performance over time is much better way to predict risk. Rather than just looking at certain variables at a point in time, the score will look at your trended history. 
For people looking to improve their credit scores quickly, trended data makes it a little bit harder. Today, if you use a personal loan to pay off your credit card debt, the drop in utilization will provide an almost instant boost to your score. With trended data, the boost probably won’t happen right away. Only if you keep the utilization low over time will you feel the reward. Basically, It will become increasingly difficult for people in chronic credit card debt to mask the fact with low utilization.
Machine Learning
I am unfamiliar with this aspect of credit monitor, so I would rather inform you of this and avoid giving arrogant and wrong knowledge than pretend I know more than I do.
The new score will be available later this year. Adoption of the score will be up to lenders and free credit score sites. Over time, you should expect to see sites like CreditKarma migrate to version 4.0 and lenders will likely follow. Which means we all have to be mindful and readjust to how we manage and handle our credit. And I suspect these types of changes will become more frequent are financial institutions try to rigid the game to fatten their profits and bottom line earnings. 


Jamaal W. Vetose
Vizier Grooming Brands

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