The three major credit reporting agencies, Equifax, Experian, and TransUnion, will soon allow use of a new credit score algorithm called VantageScore. This scoring model appears to be beneficial for folks trying to recover from bad debt and those trying to build credit for the first time.
Currently, debts that go into collections, even if they are paid off, are factored into all credit scores for up to seven years, said John Ulzheimer, president of consumer education for SmartCredit.com. But VantageScore 3.0 will no longer factor these accounts into a consumer's score if the debt was paid in full or settled, just as long as the balance is zero.
The natural disaster protection is a nice touch.
The currently ubiquitous method of scoring, called FICO, will likely still be used by some lenders.
But the boost only matters if lenders use the new VantageScore. While FICO is still the most widely used scoring model, the VantageScore is gaining ground. It's currently used by seven of the top 10 financial institutions, six of the top 10 credit card issuers and four of the leading auto lenders and mortgage lenders, according to its website.
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