VantageScore 4.0 Explained

VantageScore 4.0 is the latest VantageScore credit scoring model, and does have some differences when compared to other credit scoring models. These changes may affect your credit score for better or worse, depending on which scoring model a given institution uses.

Here is what you need to know about the new VantageScore 4.0 scoring model.

VantageScore is a popular scoring model, created as a joint venture between the three credit bureaus – Equifax, Experian, and TransUnion.

Creating a credit score using the model generates a number based on specific information the scoring model deems important. The information these scoring models use helps them decide the likelihood that any given individual will pay back their loans. A higher number score means a person is more likely to pay back their loans, and is less likely to make late payments or default on a loan.

Creating a scoring model that is both current and accurate can be difficult, and models need to be updated to keep up with current trends.

Because of this, the VantageScore credit scoring model has gone through several different iterations, each bringing its own changes. VantageScore 4.0 is the latest version of the scoring model, which has both similarities and differences to the previous models.

VantageScore 4.0 keeps the 300-850 point range associated with VantageScore, though there are some other changes which may impact your scores.

There are a number of significant changes with VantageScore 4.0 that may lead to noticable changes in your personal credit score.

At a glance, here is how VantageScore 4.0 stacks up against other scoring models, including VantageScore 3.0 and FICO score 9.

As you can see, there are both similarities and major differences in how each scoring model will be treating your credit report.

With that said, your scores come from many different sources, and changes to one credit scoring model wont automatically change your credit score – it all depends on which model a given company uses.

This is because companies compete to create and sell their credit scores. VantageScore and FICO are the two large players in the credit scoring industry, though there are also a number of smaller proprietary score models that come from banks or other financial institutions. Depending on which model you use to score your credit, it can have a great impact on your scores.

Using the VantageScore 4.0 model, you should be aware of a few major changes.

The rules surrounding collections accounts change with VantageScore 4.0. Firstly, the model doesn’t weigh tax liens and civil judgments as heavily as in the past.

Additionally, the focus on medical collections accounts is shifting in a big way. With VantageScore 4.0, medical collections accounts that are less than 6 months old will not count against your credit. Many times, the person is simply waiting on their insurance company to pay off these accounts.

Additionally, unpaid medical collections accounts in general do not hurt your credit as much as other types of collections accounts. This is in stark contrast to both VantageScore 3.0 and FICO scoring models.

VantageScore 4.0 also utilizes trending data to pick out patterns in people’s borrowing behaviors. They believe they can use this trending data history to accurately reflect how responsible you will be with money and loans in the future.

The change compared to other models is that with VantageScore 4.0, your utilization rate has a memory. Most credit scoring models use a snapshot of your current utilization rate and consider that in their scoring.

On the other hand, VantageScore 4.0 now uses up to 2 years of previous utilization data, to create a better picture of your long term behaviors. With that said, it is still a matter of focusing on making healthy practices into habits, such as paying down debt and paying more than the minimum on cards and loans. In this way, issues such as utilization will take care of themselves in the long run.

VantageScore 4.0 also allows for more accurate scoring for people who cannot get a score by other means. Many scoring models require a large amount of information about a person before they can create any type of credit score. If there is not enough information, they will not create a score at all.

For instance, though FICO provides scores for about 90 percent of the financial industry, they can still only do so given a wealth of information. FICO modeling systems require a person to have at least one account that has been open for at least six months and at least one count that has been reported to the credit bureau in the past six months – or they cannot even create a credit score.

On the other hand, both VantageScore 3.0 and VantageScore 4.0 can provide a credit score with much less information. The creators of VantageScore 4.0 also say this version is using machine learning techniques to find patterns in credit behaviors earlier than ever before.

VantageScore 4.0 brings some major changes to the scoring model. While some of these changes may have a significant impact on a person’s credit scores, the basics stay the same. Payment history, credit utilization, and other healthy habits will still be required to keep a good score.

With that said, switching to the new scoring model may cause some people to notice a significant change in their credit score. In the long run, focusing on building healthy credit habits will matter more than which credit scoring model you are using.