New Jersey home buyers are familiar with FICO - the traditional credit scoring model that is used by lenders to determine borrowing risk. While FICO has dominated the credit scoring market for the past 20 years, the new VantageScore model is gaining momentum. Here is what it could mean for New Jersey home buyers!
Per a recent CNN Money article, VantageScore is now used by 4 of the 5 top mortgage lenders in the country. VantageScore is also used by:
7 of the top 10 financial institutions
6 of the top 10 credit card issuers
4 of the top 10 car loan companies
VantageScores have been around for a few years, but have been somewhat confusing to consumers because the numerical range has been different than FICO. However, the 3.0 version of VantageScore solves this. In the future, both VantageScore and FICO will follow a credit score range of 300 to 850. The higher the number, the better the score
There are a few other differences in the scoring models that could benefit home buyers and other credit applicants. VantageScores consider rent payments, utility bill payments and public records in their computations. This will provide credit scores for consumers with little or no borrowing history who fall through the cracks with FICO.
And because VantageScore was developed by the "big three" credit reporting agencies, the logistics in scoring are more uniform. Some variety in score between one bureau and other is normal, since not all lenders report to all bureaus.VantageScore claims to "lift" consumer credit scores in general because there are fewer variances in score tabulation.
Another big plus of VantageScore: collection accounts will not hurt your score if the balances are zero.
In other respects, the two scoring models are very similar - and neither one is going to tell you exactly how they come up with your score. Nor is your lender likely to tell you in advance which credit score company they will use in their lending decision. It's possible that lenders may use both FICO and VantageScore for a more complete picture of creditworthiness.
Understanding how credit scores work can help you get approved for a mortgage and help you save thousands of dollars in interest charges. No matter the scoring model used, the same basics of good credit apply: pay your monthly bills on time, and keep your credit use to a minimum!
As your real estate professional, I'm happy to share consumer information that benefits the residents of Millburn-Short Hills, Livingston, and Summit. Please feel welcome to pass this information along!
When you have questions about New Jersey real estate, I will be here to help you! Just give me a call!
Coldwell Banker Residential Brokerage
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