Major changes coming to how your credit score is calculated

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The math behind your credit score is getting an overhaul, with changes big enough that they might alter the behavior of both cautious spenders as well as riskier borrowers.Most notably for those with high scores: Abiding by the golden rule of "don't close your credit card accounts" may now hurt your standing. On the other side, those with low scores may benefit from the removal of civil judgments, medical debts and tax liens as factors.Beyond determining whether someone gets approved for a credit card, a credit score can affect what interest rate and what spending limit are offered.The new method is being implemented later this year by VantageScore, a company created by the credit bureaus Experian, TransUnion and Equifax. It's not as well-known as Fair Isaac Corp., whose FICO score is used for the vast majority of mortgages. But VantageScore handled 8 billion account applications last year, so if you applied for a credit card, that score was likely used to approve or deny you.

Continues: http://www.wfaa.com/ext/news/nation-now/major-changes-coming-to-...

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Just my observation based on the last three months of total CC utilization increase from 2% to 4% to 6%:

  1. Credit Karma reports VantageScore 3.0 and it knocked a total of 15 points from my score, likely due to the increasing utilization trend.
  2. On FICO score provided by Amex, the same utilization increase has no effect on the credit score. I believe anything below 9% still give the highest score.
  3. I always pay in full each month. The increases were due to large purchase and IRS tax payment, not balance accumulation. But I do not think this fact is known from the report.
  4. All scores are still above 800.

"Changes coming to how A credit score is calculated"

I've never noticed a big change in previous scoring updates, but it's possible that recently updated systems usually aren't ones consumers would ever see. And between "8 billion account applications last year" and the "average inquiries" info available from Credit karma and others, someone's lying. Maybe Vantagescore 3 had 8 billion total inquiries in a year, including all of the soft ones they offer through CK and the like.

This news has been torn apart on CreditBoards. Check there.

Reading through the creditboards, the theme seems to be the change affects Vantage Score which isn't used by most lenders. FICO score is what they use and isn't impacted.

alexnyc said:   Reading through the creditboards, the theme seems to be the change affects Vantage Score which isn't used by most lenders. FICO score is what they use and isn't impacted.
Yes.  I did make a comment there.  I don't think VantageScore is used by any lenders.  Also, extremely unlikely FICO will make changes to their scores that are totally the opposite of how their scores are currently calculated.  There is no creditability in doing that.


  

I have 22 active credit cards, mostly due to bonuses offered. My current FICO is 833. When I add a credit card my score goes up a few points and when I cancel a card it goes down a few points. The explanation given was that when I cancel a card it de erases my available credit and thus impacts available credit to debt ratio. When I add a card it increases my credit to debt ratio. 

When will changes go live? I have tens of open CC's from FWF bonus over the years. Debating if closing will lower FICO

vickh said:   When will changes go live? I have tens of open CC's from FWF bonus over the years. Debating if closing will lower FICO
  It will but not by much.

burgerwars said:   
alexnyc said:   Reading through the creditboards, the theme seems to be the change affects Vantage Score which isn't used by most lenders. FICO score is what they use and isn't impacted.
Yes.  I did make a comment there.  I don't think VantageScore is used by any lenders.  Also, extremely unlikely FICO will make changes to their scores that are totally the opposite of how their scores are currently calculated.  There is no creditability in doing that.


  

  It's alledgedly used in a non-zero number of credit transactions that are <10%.

Vantage Scores have been around for years and nobody uses them. Those scoring models are based on 1000 points and the Fico system is based on a 850. The thing is, the 'Fico scores" are ingrained in the Financial/Lending World that I just don't see that ever changing.

The only industry that I could see possible switch is Credit Cards. Even that is a stretch in my opinion.

It is like the Metric System compared to Imperial Units:Yes, the Metric system is better but we will never switch in the US to full integration. Only Science and the Medical community really uses Metric. I am sure there are a few other outlier industries but the "People at Large" are stuck on using and thinking in Imperial Units and that is never going to change.

The Mortgage Loan business that I am intimately involved in, will never switch. Even the older Mortgage Fico Model #5.0 has never been agreed upon to be updated to newer more accurate #8.0 model for mortgages. The powers that run the industry cant even agree on switching to Fico 8.0. (FNMA, FMCC, VA, FHA, FFHA, FDA & Private Lenders)

The Fico scoring system is so ingrained in the industry it would be just be too hard to make the switch.

The last 3 major changes in the Mortgage business that were forced on us as a Industry (GFE 2010, LO Comp 2011, Dodd/Frank- "QM/ATR" 2013, TRID 2015 & now the upcoming HMDA 2018) were so difficult that many lenders just quit or severely pulled back there lending profile. Those regulations were forced by the Government (or Agencies) and while they all were perhaps needed, the implementation caused unbelievable chaos including most importantly huge sums of money to make the conversion.

The conversion to Vantage from Fico would just cost too much for conversion and industry wide training on what the different scoring model means for qualifications.  Fico is here to stay with all the problems and inaccuracies unless there a push from a Government agency and believe me there would be huge resistance from all the lenders involved, that I just don't see widespread implementation ever happening.

bopc1996 said:   I have 22 active credit cards, mostly due to bonuses offered. My current FICO is 833. When I add a credit card my score goes up a few points and when I cancel a card it goes down a few points. The explanation given was that when I cancel a card it de erases my available credit and thus impacts available credit to debt ratio. When I add a card it increases my credit to debt ratio. 

I think you just got a rote explanation. Unless the distribution of credit limits is highly bimodal, with 22 cards, the effect on your overall debt to credit limit ratio of opening or closing one should be in the realm of rounding error.

The effect of some actions depends on the existing credit makeup. Opening a card decreases total debt to credit limit ratio, but on the other hand decreases average age of accounts and requires a hard pull. Closing increases debt to credit limit ratio and may increase or decrease average age of accounts.

Completely depending on the circumstances, whether the card in question improves your mix of store vs. general credit cards can make a difference in some models.

Colt2001 said:   Vantage Scores have been around for years and nobody uses them. Those scoring models are based on 1000 points and the Fico system is based on a 850.CreditKarma provides free VantageScore credit scores, where the two credit scores they provide (one for TransUnion, the other for Equifax) clearly show that they're based on a scale of 300 - 850. They even include the following text on their web-stie:
 
CreditKarma.com said: About Your Credit Scores

Calculated using the VantageScore 3.0 model, these scores range from 300 to 850. They're calculated by TransUnion and Equifax, respectively, so the scores may vary based on each credit report.

TheDiggler said:   
Colt2001 said:   Vantage Scores have been around for years and nobody uses them. Those scoring models are based on 1000 points and the Fico system is based on a 850.
CreditKarma provides free VantageScore credit scores, where the two credit scores they provide (one for TransUnion, the other for Equifax) clearly show that they're based on a scale of 300 - 850. They even include the following text on their web-stie:

CreditKarma.com said: About Your Credit Scores

Calculated using the VantageScore 3.0 model, these scores range from 300 to 850. They're calculated by TransUnion and Equifax, respectively, so the scores may vary based on each credit report.


  Originally they were 1000, I believe they reworked it to 850 when they moved to 3.0 because they were hoping to convince lenders to just plug in their numbers instead of Fair Isaacs.

TheDiggler said:   
Colt2001 said:   Vantage Scores have been around for years and nobody uses them. Those scoring models are based on 1000 points and the Fico system is based on a 850.
CreditKarma provides free VantageScore credit scores, where the two credit scores they provide (one for TransUnion, the other for Equifax) clearly show that they're based on a scale of 300 - 850. They even include the following text on their web-stie:

CreditKarma.com said: About Your Credit Scores

Calculated using the VantageScore 3.0 model, these scores range from 300 to 850. They're calculated by TransUnion and Equifax, respectively, so the scores may vary based on each credit report.


Fair Correction to Diggler and Redwolfe.  I looked it up and they did change the points model from 1000 to 850.  Honestly like I said, I dont pay attention to VantageScore Model changes because as I stated no one uses this scoring model to my knowledge in real world lending situations.  The financial industry is stuck on Fico models and the corresponding FICO model of their particular industry. Credit Karma sell this version to customers but it is not used.  I recommend www.myfico.com to my clients because that is only credit monitoring system that I know that shows all the different models of Fico including the most important to my client the "Mortgage Model Fico" Version #5.0.  It is somewhat expensive but in the short term I have seen it help the client and myself know when to pull a new credit report when information has been updated at the bureau level.

CreditKarma includes full access to two credit reports. So while the score numbers themselves aren't likely the exact same any particular lender will use, the underlying data will be. So if you're watching to see when a New Balance is reported or any other change, CK gives you reliable info for TU and EQ.

They didn't originally do this, but added it at least a couple of years ago.

hIMBoring25 said:   
bopc1996 said:   I have 22 active credit cards, mostly due to bonuses offered. My current FICO is 833. When I add a credit card my score goes up a few points and when I cancel a card it goes down a few points. The explanation given was that when I cancel a card it de erases my available credit and thus impacts available credit to debt ratio. When I add a card it increases my credit to debt ratio. 

I think you just got a rote explanation. Unless the distribution of credit limits is highly bimodal, with 22 cards, the effect on your overall debt to credit limit ratio of opening or closing one should be in the realm of rounding error.

The effect of some actions depends on the existing credit makeup. Opening a card decreases total debt to credit limit ratio, but on the other hand decreases average age of accounts and requires a hard pull. Closing increases debt to credit limit ratio and may increase or decrease average age of accounts.

Completely depending on the circumstances, whether the card in question improves your mix of store vs. general credit cards can make a difference in some models.

  You might be right ; All i know is that when i cancel a card my score goes down and when i add a card it goes up;

bopc1996 said:   hIMBoring25 said:   bopc1996 said:   I have 22 active credit cards, mostly due to bonuses offered. My current FICO is 833. When I add a credit card my score goes up a few points and when I cancel a card it goes down a few points. The explanation given was that when I cancel a card it de erases my available credit and thus impacts available credit to debt ratio. When I add a card it increases my credit to debt ratio. I think you just got a rote explanation. Unless the distribution of credit limits is highly bimodal, with 22 cards, the effect on your overall debt to credit limit ratio of opening or closing one should be in the realm of rounding error.

The effect of some actions depends on the existing credit makeup. Opening a card decreases total debt to credit limit ratio, but on the other hand decreases average age of accounts and requires a hard pull. Closing increases debt to credit limit ratio and may increase or decrease average age of accounts.

Completely depending on the circumstances, whether the card in question improves your mix of store vs. general credit cards can make a difference in some models.
You might be right ; All i know is that when i cancel a card my score goes down and when i add a card it goes up;
Sounds unlikely. What is your total debt and total available credit? With total credit lines above $50K and debt to credit below 30% I would expect a new credit card to decrease the score, because adding a new account  has the following negative factors: new hard inquiry, recent account opening, lower average age of accounts. Closing an account does not affect average age of accounts until that account drops off the report in 10 years. It only affects total available credit and debt to credit ratio, so if you have enough credit (> $50K according to Capital One CreditWise) and very little debt, it shouldn't affect your score at all.

bopc1996 said:   
hIMBoring25 said:   
bopc1996 said:   I have 22 active credit cards, mostly due to bonuses offered. My current FICO is 833. When I add a credit card my score goes up a few points and when I cancel a card it goes down a few points. The explanation given was that when I cancel a card it de erases my available credit and thus impacts available credit to debt ratio. When I add a card it increases my credit to debt ratio. 

I think you just got a rote explanation. Unless the distribution of credit limits is highly bimodal, with 22 cards, the effect on your overall debt to credit limit ratio of opening or closing one should be in the realm of rounding error.

The effect of some actions depends on the existing credit makeup. Opening a card decreases total debt to credit limit ratio, but on the other hand decreases average age of accounts and requires a hard pull. Closing increases debt to credit limit ratio and may increase or decrease average age of accounts.

Completely depending on the circumstances, whether the card in question improves your mix of store vs. general credit cards can make a difference in some models.

  You might be right ; All i know is that when i cancel a card my score goes down and when i add a card it goes up;

  Don't know if I agree with that, as a blanket statement.

I am aware of the difference between Vantage and Fico, so I've tried to get Fico scores for free through my credit cards when I can. According to their press Citi provides Equifax free, Discover provides Transunion free, and Amex provides Experian free. However, the score I get from Citi has a scale that goes up to 900. Is that a valid Equifax FICO then?

pitflyer said:   I am aware of the difference between Vantage and Fico, so I've tried to get Fico scores for free through my credit cards when I can. According to their press Citi provides Equifax free, Discover provides Transunion free, and Amex provides Experian free. However, the score I get from Citi has a scale that goes up to 900. Is that a valid Equifax FICO then?Start with the quick summary in this thread.



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