For more than 25 years, credit scores have been practically synonymous with FICO, the shortened name of the Fair Isaac Corporation. However, a new company, VantageScore Solutions, has emerged in recent years and is chipping away at FICO’s dominance in the credit score business. “VantageScore Solutions is an effort to provide more choice in the marketplace,” says Ezra Becker, vice president of research and consulting for the credit bureau TransUnion. The credit scoring company is the result of a combined effort of all three major credit bureaus: Experian, Equifax and TransUnion.The company was founded in 2006 and has gained traction. From 2014 to 2015, VantageScore credit scores were used more than 6 billion times, double the amount used from 2013 to 2014. Just as with FICO scores, VantageScore credit scores are used to determine the likelihood someone will pay back a debt. “Credit scores are a scaled representation of the probability of default,” Becker explains. Last December, House Resolution 4211 was introduced in Congress to allow Fannie Mae and Freddie Mac to use alternate credit scoring methods when making mortgage decisions. Jill Gonzalez, analyst for WalletHub.com, says if the bill is passed, it might result in the programs adopting VantageScore, a move that could be a major coup for the company.“What Fannie and Freddie do now is use outdated models,” Gonzalez says. A switch to VantageScore would change the way applications are evaluated and make it easier for borrowers who have low credit scores under the FICO model to purchase a home. Plus, it could further dent FICO’s hold on the credit score industry. Navigating the Sea of Credit ScoresBecker is quick to note Americans use the word FICO to describe credit scores in the same way they may use the word Kleenex to describe facial tissue. The word has turned into a generic term for how lenders evaluate creditworthiness, but Becker says there is actually a variety of credit scores that can be used.Each of the major credit bureaus has, at one time, created its own score. Other companies, like CreditXpert, are in the business as well. Even within FICO, there are numerous scores. While FICO Score 8 may be most widely used for credit card applications, student loans and other credit decisions, there are FICO Auto Scores, FICO Bankcard Scores and older versions of FICO’s main scoring model that may be used for mortgages.VantageScore seems to be making in-roads in the industry, in part, because it offers a simplified scoring method. “VantageScore has three scoring models,” says Bethy Hardeman, chief consumer advocate at Credit Karma. “For comparison, FICO has over 50 different scoring models.” While each credit bureau may use a different version of the FICO score for various lending scenarios – for example, for mortgage lending, Experian uses FICO Score 2, while Equifax uses FICO Score 5 – VantageScore is uniform across all three companies. The only reason a VantageScore could vary from one bureau to another is if a lender chooses not to report an account to all three companies, according to Becker.What It Means for YouA move to VantageScore could be good news for consumers, particularly those with a weak credit history. VantageScore 3.0 is the most current version and looks back 24 months at a person’s credit history, a feature that allows it to score more people who have little or no recent credit history. “[The company’s] latest scoring model can score up to 35 million more consumers compared to other models due to its broader consideration of credit data,” says Hardeman, adding that the free scores offered on Credit Karma come from VantageScore. The wider consumer net is also because the model can score people with as little as one month of credit history compared to six months for FICO scores, Gonzalez explains. Score models are created using anonymous sample consumer demographics and credit data. While VantageScore 3.0 is a relatively new model, older FICO scores may be based on decades old data. “A score created in 2002 may not be appropriate for the lending environment and consumers today,” Becker points out.The bottom line for borrowers is that VantageScore may make it easier for some people to get access to credit, but it won’t wipe away all financial sins. “If someone is undeserving of credit due to a history of not paying [bills], that won’t change [with VantageScore],” Gonzalez says.Rather than hope a change in score will make credit available, consumers should stick with the tried-and-true methods of paying on time and limiting the debt they carry. .
mortgages
If you have a dismal credit score, and you plan to apply for loan for a new house or car, you probably are doing whatever you can to bring your numbers up. You're paying your bills on time. You've been studying your credit reports and contacting the bureaus if you find any incorrect information. Maybe you've even taken out another small loan, just to show lenders that, yes, you've got this.But you may not have this. Not yet, anyway. A high credit score doesn't guarantee a loan. If you are planning on applying for a loan, keep the following in mind.[See: 12 Simple Ways to Raise Your Credit Score.]Your credit history has more to do with getting a loan than your credit score. According to Fair Isaac Corporation, which created the credit scoring algorithm that most lenders use when making lending decisions, excellent credit is when your score is 720 or more. Good credit would be 690 to 719. Fair credit is 630 to 689. Bad credit generally includes scores from 300 to 629.Credit scores and reports do tend to go hand in hand. If you have a high credit score, you probably have a positive credit report. But not always. You may have been a financial disaster up until a few years ago when you completely turned things around, and ever since, have watched your credit score climb.And while a few years of good financial behavior may be enough to get you a loan, lenders may nevertheless be scared by your past.[See: 10 Easy Ways to Pay Off Debt.]"Ultimately, the approval process is different for each applicant and lender," says Carla Blair-Gamblian, a consultant at Veterans United Home Loans, a mortgage brokerage in Columbia, Missouri.And whoever is looking over your loan may not be really looking at your credit history; instead he or she may be using a software program to make the decision."Many lenders use an automated system from Fannie Mae or Freddie Mac to get an approval status, so even if you have a great credit score but had really poor credit in the past, you may not still be able to get a mortgage loan," says Jeremy David Schachter, a mortgage advisor at Pinnacle Capital Mortgage Corporation in Phoenix, Arizona.If you do get approved for a loan, it's then that the credit score kicks in and becomes relevant, according to Schachter."Whatever your credit score is at the time of the application is what's determined for the interest rates," he says.Some items look bad on a credit report; others, don't look as bad. This won't shock you, but the longer you take to make a payment, the worse your credit report looks in the eyes of a lender. If your debt winds up in court, or you have a bankruptcy in your past, or a lien on your home, that could definitely derail your attempt to get a loan.But if you have a lot of late bills in your past, but you always managed to get them paid within 90 days, a lender typically won't be too horrified by that.David Hosterman, a branch manager with Castle & Cooke Mortgage LLC in Greenwood Village, Colorado, says many financing companies have specific guidelines when it comes to "derogatory credit items," and often the guidelines are tied to a specific time."For instance when it comes to home loans, in regards to an FHA loan, [lenders] typically require that a customer is two years discharged from a bankruptcy before obtaining new credit," Hosterman says. "For conventional loans – Fannie Mae and Freddie Mac – they typically require a four-year waiting period."Hosterman adds that these are just guidelines, and if a customer can prove that a bankruptcy was due to extenuating circumstances, like being laid off from work, you might have a better shot of getting a loan with some lenders.[See: How to Live on $13,000 a Year.]Other factors can come into play when it comes to your loan's terms. If you get an approval, and you have that high credit score, you're almost certainly going to get a loan with good terms. But you may not get the best terms possible.When it comes to a mortgage, "interest rates are based on many different factors," says Schachter, adding that several of those factors include your credit score, what kind of property you're buying and how much your down payment will be.If you are denied a loan. You can always apply for another loan with someone else. You have probably heard that applying for multiple loans can make a credit score drop, just what you don't need, but according to MyFico.com, Fair Isaac Corporation's website, if you apply for multiple mortgage, auto or student loans within a 30-day period, your score won't be affected. The company recognizes that you're shopping for a loan, and that it isn't as if you're going to wind up with three car loans and two mortgages. If you apply for multiple credit cards, however, that could drop your score.If you keep getting turned down, however, then at some point you'll need to bow to reality and put off applying for a loan. Fortunately, time heals all financial wounds – eventually. For instance, a bankruptcy will be removed from your credit report, typically after seven years, if it's a Chapter 13 bankruptcy. A Chapter 7 bankruptcy will be removed after 10 years.So you may have to bide your time while you wait for another year or two to go by, and your credit report and its history becomes less worrisome to lenders. The good news is that as long as you keep doing what you're supposed to be doing, and paying off your debts and staying on top of your finances, your credit score will likely keep going up. When you are eventually approved for a loan, the terms you get will probably be even better than they would have been had you received your money today.12 Habits to Help You Take Control of Your Credit.