Why is VantageScore 4.0 a Game Changer for Underserved Consumers?

Credit scores are generally factored into lending decisions in the United States, especially when unsecured financial products, such as signature loans in Utah and revolving lines of credit in Colorado, are in question.

You may have multiple credit scores, but only three truly matter: those generated by TransUnion, Experian, and Equifax. These credit-reporting agencies traditionally use FICO scoring models even if they cannot accurately score all consumers. Because of the broken conventional credit scoring systems, the three credit bureaus decided to join forces to come up with their own.

Introducing VantageScore. Since its first iteration in 2006, VantageScore underwent three more series of evolution until 2017. Although its 4.0 release has yet to receive the warmth of welcome its 3.0 version got, the new VantageScore paints a rosy future for many American borrowers, particularly those in the subprime category and those considered credit invisible.

For starters, these are what separate VantageScore 4.0 from other credit scoring models:

Table of Contents

Trended Data
Medical Collection Accounts
Tax Liens and Civil Judgments
Dormant Payment Histories

Trended Data

The defining quality of the latest VantageScore is an affinity for trended credit data. It is the first credit-scoring model that takes a snapshot of a borrower’s credit reports that go as far as two years. In other words, it does not only look at a consumer’s recent credit utilization rate. Instead, it looks for patterns of consumer borrowing behavior over the past 24 months.

Why should you care about trended data? If you have never been in a deep level of indebtedness before, your two-year credit utilization rate history can show lenders that you have not over-depended on loans and revolving lines of credit.

As VantageScore 4.0 does not believe that recent severe credit usage does not give justice to the creditworthiness of borrowers, historically financially responsible individuals can receive better credit scores.

Medical Collection Accounts

The latest VantageScore version believes that unpaid medical collection accounts should carry less weight with a person’s credit score. This scoring model deems them important, but not as damaging as other types of collection accounts.

Tax Liens and Civil Judgments

TransUnion, Experian, and Equifax are no longer as interested in about 50% of tax liens and almost all civil judgments when calculating credit scores. These negative items may still appear in the credit reports they generate, and they can hurt a borrower’s credit when they do, as per VantageScore 4.0.

Dormant Payment Histories

Thanks to the latest iteration of VantageScore, thin-file borrowers are no longer being penalized for having minimal payment histories. This credit scoring system uses numerous machine-learning techniques to come up with more suitable scorecards for consumers with dormant credit files over a six-month period.

As a result, the folks behind VantageScore claim to accurately score otherwise “unscorable” consumers. To put things into perspective, VantageScore 4.0 is designed to assign credible credit scores to over 30 million consumers who are often ignored by the scoring models that came before it.

Only time can tell how fast lenders will adopt VantageScore 4.0 once it becomes available this fall. Until then, consumers have no choice to play by the old credit scoring rules in hopes of obtaining credit for less in the future.

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About the author

Lee McMahon

Lee is an experienced digital marketing executive and head of organic growth, with a focus on optimizing user engagement and understanding search intent. When he's not busy working, he loves to stay active by playing skating and enjoys going out for parties with friends.