Home > Mortgages > What is VantageScore and How Will it Change the Housing Market?

Comments 0 Comments

Did you know you have multiple credit scores, and that for all the work you have done to build your FICO score there are actually many other factors that can affect loan approval?

FICO — the Fair Isaac Corporation, which calculates consumer’s credit — has essentially operated unopposed for decades. FICO scores have become synonyms with credit reports and 90 percent of loan decisions depend on this numeric assessment of borrower viability.

However, In 2006, the three major credit reporting agencies — Equifax, TransUnion, and Experian — developed their own credit reporting algorithm, VantageScore. VantageScore was developed in an effort to compete with FICO, but has yet to harness the same control in the credit reporting market.

VantageScore is similar to FICO because it uses statistical analysis to predict the likelihood a borrower will default on a loan. Like FICO, the viability of a borrower’s potential is represented by a number between 350 and 800. However VantageScore uses a proprietary algorithm that favors those with little credit history.

Unlike FICO, VantageScore considers recurring payments such as phone bills, utilities, etc. and takes into account 24 months of activity rather than the six-month period of FICO scoring. For this reason, VantageScore can be an advantageous score for those with little or no established credit history.

While VantageScore is used by around 3,000 lenders, it still has a ways to go before usurping FICO control. However, this could change in light of potential Federal Housing Financing Agency reform. The regulatory agency is considering changing credit score requirements and potentially transitioning to VantageScore instead of, or in addition to, FICO. If this is the case, there could be significant changes in the way people secure new homes.

Easier for first time homeowners to qualify for mortgages

A 2015 Consumer Financial Protection Bureau report found that nearly 45 million Americans lack any significant credit history. As a result, a major portion of the American demographic is barred from mortgage approval which not only prevents millions from achieving their dreams but also inhibits housing market growth.

Inclusion of VantageScore for credit checks would inject a huge sum of money into the housing market, which would normally go to rent payments. An invigorated housing market would benefit new owners, current owners and future owners — a win/win/win for all involved.

Overall increased consumer control

The government-controlled agencies Freddie Mac and Fannie Mae, which guarantees U.S. mortgages, have almost always required lenders to use FICO scores to determine prospective borrowers’ creditworthiness. This means consumers have been pigeonholed to one, single way of building their credit history. The only way to satisfy the standards of FICO, and build credit under this model, has been to follow a pre-established and static path of borrowing.

If VantageScore were to be considered for mortgage approval, Americans would have greater consumer freedom — possibly rerouting the journey to homeownership entirely. An alternative credit reporting method would allow mortgage approval for a whole new crop of borrowers that did not follow a traditional financial path.

This is an exciting prospect because it means a previously unconsidered group can now potentially secure a loan. More often than not, opening up markets and promoting consumer flexibility is a favorable prospect for the U.S. economy and individual prosperity.

Greater possibility to start anew

One of the most prominent advantages of VantageScore for many Americans is that paid collections are completely disregarded. Under FICO, if you happen to be in collections for delinquent bills, but then pay the outstanding amount, your credit report is still negatively marked for many years. This is a tricky situation for many people that experienced temporary financial hardship because they continue to be punished for collections despite paying off those accounts.

VantageScore takes a different approach to collections — there is no harm done if collections are paid. This is a huge advantage for newly prosperous individuals because they can be approved for a mortgage unfettered by past mistakes.

Break up FICO monopoly

When a single entity controls an entire market, consumers sacrifice free market agency. This is not to say FICO exercises any sort of tyrannical control, but it could certainly be a positive thing for consumers to have more options. As stated above, mortgage approval will usually come down to your FICO score, so an alternative would improve many people’s opportunity to get a home.

The importance of checking credit

VantageScore is currently being used for some auto loans, credit cards and mortgages. Wider acceptance — brought on by sweeping federal adoption — would have vast-reaching implications on the housing market and individuals alike.

Today, when you apply for credit, you don’t get to choose if your FICO or VantageScore is used. For this reason it’s important to monitor all financial factors and repair credit as needed.

In light of further acceptance of VantageScore your job as a consumer has gotten a little harder. Most people know it’s a good idea to check FICO scores before applying for mortgages, but that’s simply not enough these days.

Credit.com offers members a free, personalized credit report card which offers a complete, holistic snapshot of credit standing. This report includes:

  • VantageScore
  • Experian Score
  • Analysis of five key credit factors so you know where you stand overall
  • And much more

This free credit report card distills complex financial information into an easy-to-understand document. This way you know where you stand when applying for a mortgage. Credit.com credit report cards include a full background of your credit history including personal information, delinquent accounts, and accounts in good standing.

Sign up with Credit.com to receive free personalized credit report card, including VantageScore, and ensure there are no surprises when applying for a mortgage.

You can also carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.


Image: iStock

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Credit.com receives compensation for the financial products and services advertised on this site if our users apply for and sign up for any of them.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team