VantageScore– What is That?

For most people getting a free credit score is a good thing, right? Well, yes and no. Up until recently most people didn’t know that the way the free credit score websites calculate your credit score is not the same calculations that your potential credit givers use. VantageScore is the way that free credit reports are using.

As discussed in a previous blog, we talked about FICO scores — which is the oldest and the most widespread for many potential credit givers (about 90%) — but there is a newer way to calculate your score — It is called the VantageScore.

The VantageScore is a potential risk calculation created by three major credit reporting companies: Experian, Equifax and TransUnion.  Back in 2006, these 3 companies started this score system in the hopes of becoming a viable competitor — thus avoiding the large fees they currently pay to Fair Isaac Corp. Up until now, this system has gone thru 3 different versions.  The last version (3.0 released in 2013) is based on the same scale as the FICO scoring model which is from 330-850. In the case of VantageScore there are different percentages on which constitutes a low or a high credit risk. (1)

So what does this mean for us the consumers?

That a credit score is just a number, and it is not one of the major factors used to calculate our credit worthiness.  The table that is shown below is a more accurate reflection of the “behaviors” that are used to calculate the credit risk of a potential borrower. Even though there has to be a numerical range to start with, just like grades in the school — you have passing and failing grades — this is only the beginning of whether you are going to be considered for a loan.  Have in mind that any score is the reflection what has happened over the past 7-10 years and represents a statistical probability that one will default within the next 90 days to 6 months.

Typically, any score under 540 will not even start a conversation with most lenders unless you are willing to pay very high interests on the loan. As you may know, not many lenders will take the risk. Scores over 620 will at least start the conversation with the lender, and of course the higher the score, the most likely you will be considered for a loan.(2)

Chart illustrating what behaviors affect the conumer's credit worthiness

Graphic taken from VantageScore_Score_Impacts_Paper_July_2012_Final.pdf

So here is the “Big Elephant in the Room” — To quote from an expert on solving issues that limit dreams  Jackie Simmons: The Elephant Tamer.

How can you improve your probability of getting a loan or improving your credit score once you got over your head?

If your first reaction is getting a loan to get out of loan is not clear thinking. It is like the popular adage goes “robbing Peter to pay Paul” which doesn’t improve the situation, it just get you further down.

First let’s take a look at the next chart which indicates five activities that over time affect your credit worthiness and think about what it means to you.

Graphic taken from VantageScore_Score_Impacts_Paper_July_2012_Final.pdf

These are the things that we see: 

  1. Obtaining a new credit and closing and account aren’t major factors.
  2.  Once you max out your credit cards, the situation begins to get difficult because something in your life has happened that disables you from paying the balances on time and therefore start to accumulate interest as you make minimum payments. Your downward spiral begins. Unless you are able to come up with the money to cancel all your debts, which is highly improbable, you are now tied up to your lenders. Believe us when we say, you become one of their favorite customers.
  3. Missing payments starts to  take a toll and now you are in for 1 year or more away from fixing your situation.
  4. Bankruptcy is obviously the worst of all. It follows you for an entire decade.

So, what is the best way to maintain your creditworthiness?

It depends. It is all based on your personal circumstances because there is no clear cut solution for everybody. But, is there an overall  way that will help you work on solving your personal situation in a more reasonable and better way than the worst case scenario?

YES! Financial Integrity Group offers you a highly regulated program that enables you to stop the downward spiral and get back on track sooner than you could do on your own.
The hardship Debt Relief Program enables you to take advantage of the leverage of the company to eliminate your debt in half the time for half the money and regain your creditworthiness with dignity and a much improved Debt-to-Income Ratio (DTI) which is what really enables you to borrow money in the future.