Will VantageScore 4.0 Level the Playing Field for Those Without Credit?

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You might have heard the term FICO floating around personal finance advice columns, but did you know it’s not the only credit scoring formula?

FICO scoring, the system Fair Isaac Corporation developed, has been around since the 1960s. But there’s a newer kid on the block, and it’s making some adjustments to how it determines your credit score.

Meet VantageScore, which debuts its fourth iteration to the credit reporting companies — Experian, Equifax and Transunion — this fall.

Don’t Have a Credit Score? That’s About to Change

The three major credit reporting companies developed VantageScore in 2006. Both FICO and VantageScore formulas rate your credit on a scale of 350 (really, really bad credit) to 850 (how’d you get so good with money?).

But with its new version of voodoo math, VantageScore claims it can calculate credit scores for people who don’t have lengthy or detailed credit histories.

“VantageScore 4.0 scores some 30-35 million consumers who cannot obtain a credit score when conventional scoring models are used,” the company said in a statement.

Those consumers may have short credit histories (looking at you, Generation Z) or few records because they rely on nontraditional banking methods.

Picture a World With More Accurate Credit Scores

VantageScore 4.0 is the first scoring model that fully embraces adjustments the National Consumer Assistance Plan, the cross agency reporting initiative to make credit reports more fair and accurate, formulated.

Highlights of the initiative include allowing customers who dispute information on their free annual credit report to receive another report without waiting a year; not reporting medical debt until a 180-day window passes to allow for insurance payments; not including parking tickets or other fines charged when the consumer didn’t enter a transaction agreement; and additional protection for victims of fraud.

The new VantageScore model separates medical collections from other collection accounts and puts less of a penalty on them. The system also “relies less on derogatory collections and public records data” like tax liens and civil judgments.

By evaluating your credit use trends rather than just a snapshot, the VantageScore anticipates greater score consistency across the three credit-reporting agencies. VantageScore claims its formula is a better predictor of a person’s creditworthiness.

The credit reporting companies will gain access to the latest VantageScore model this fall, but it may take a while before you learn how the the 4.0 model affects your credit score. In fact, because there are several versions of both the VantageScore and FICO models, any credit report you pull for yourself could have a score based on an older version.

In the meantime, the best way to take care of your credit score is to understand how it’s calculated — and then take necessary steps to make sure your credit profile is squeaky clean.

Your Turn: Will this new VantageScore method benefit your credit report?

Lisa Rowan is a writer and producer at The Penny Hoarder.