For those with some credit issues this is some good news overall. Paying off a bad debt will not hurt scores.
http://ecreditdaily.com/2013/03/vantagescore-30-scoring-millions-credit-hardships/
The company behind the VantageScore, the most widely used credit scoring model behind FICO, said it has updated its system to include up to 30 million “previously unscorable consumers.”
VantageScore Solutions has also modified its scoring scale, now using the 300-850 range that aligns itself more with FICO.
The updated VantageScore 3.0 could also help consumers who default on loans as a result of a single or unique event, such as a natural disaster or sudden loss of income, by providing lenders with more precise timetables to better reflect an individual’s fuller credit profile.
In the case of a consumer’s account that goes into collections, for example, the consumer’s score will not be penalized if the debt was paid in full or settled.
The more detailed measurement of delinquency and default timeframes “provide for an improved representation of a consumer’s payment behaviors,” VantageScore said.
The biggest change in “VantageScore 3.0″ is its potential impact on consumers with little credit. It will now weigh rent, cellphone and utility payment records when formulating the score for a consumer with a limited credit history – if that information is present in a consumer’s credit file.
This should allow VantageScore to include as many as 30 million people who previously couldn’t get a credit score, and potentially help them qualify for more competitive credit rates.
The VantageScore was created in 2006 by the three national credit reporting companies: Equifax, Experian and TransUnion. The company said the scoring model was started to “employ the same characteristic information and the same model at each of the three credit reporting companies.”
“The model (VantageScore 3.0) was built with a lender’s implementation and risk management needs in mind, in conjunction with a deeper understanding for what information consumers need to become better managers of their own credit,” said Barrett Burns, president & CEO of VantageScore Solutions.
However, the bolstered VantageScore 3.0 can also keep non-credit consumers from getting the best rates if they have a history of missing monthly housing bills.
Moreover, none of it matters if a lender doesn’t use the new VantageScore.
FICO is still the most widely used scoring model, although the VantageScore is gaining ground. VantaScore is currently used by seven of the top 10 financial institutions, six of the top 10 credit card issuers and four of the leading auto lenders and mortgage lenders, according to the VantageScore website.
VantageScore 3.0 will also do a better job of distinguishing between different types of loan products.
It will, for example, separate first mortgage from other mortgage related transactions “facilitating greater intelligence with regard to a borrower’s mortgage-related debt,” the company said.
It will also have the ability to identify student loan accounts from other types of installment accounts.
