There is lots of talk going on about the new VantageScore credit scoring system. Have you heard?
This credit scoring method places more emphasis on your recent history and can also include your rent and utility payments. It’s supposed to help give lenders a better picture of your overall credit worthiness by including bills that you have been paying for years and have not been getting credit for under the FICO scoring method. Experian is the only credit reporting agency to include rental payments so far.
As you know, there are three major credit reporting agencies in the United States; Experian, TransUnion, and Equifax. Each one has a credit file on you, therefore you have three separate FICO scores. The FICO scoring method was created by the Fair Isaacs Corporation as is used widely by companies in the United Stated to asses your credit risk. The FICO scores are computed from a complex algorithm that takes multiple pieces of information into account to create a numerical representation of your credit risk between 300 and 850. The higher the number, the less concern there is that you will repay any loan extended to you. According to www.MyFico.com the five most important pieces of information are: payment history, debt ratio, length of credit history, new credit, and types of credit used. Credit scores go up and down based on your behavior.
The VantageScore scoring method is owned by Experian, TransUnion, and Equifax together, so it’s offered by all three scoring companies, along with the traditional FICO score. Scoring is very similar to the FICO model but with two differences: what you’ve done lately is weighted more than what you’ve done previously and rental payments can be included in your score. This will be a benefit to those with little-to-no traditional credit history: young adults, those that do not use credit cards, and recent immigrants. The range is from 551 to 990 and will be accompanied by a letter grade.
Haven’t we all wondered why someone can’t get a mortgage with a monthly repayment of $900 when they have been paying $1,200 in rent, per month, for the last five years? Well, this new scoring model can take those payments into account. We have to make sure that our voice is heard, especially in areas of credit reporting. Encourage your rental company to start reporting rental payments today.
Visit www.VantageScore.com for more information about the new VantageScore scoring model and don’t forget to ask your rental agency if they are reporting your rental history. It could help you buy a home of your own.
Shay Olivarria is the most dynamic financial education speaker working today and the author of three books on personal finance. Visit her at www.BiggerThanYourBlock.com.
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