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credit & debt

A Credit Score That Cuts You a Break

Changes to the formula for VantageScore may benefit the millions of consumers who are currently scoreless.

For once, changes to the way a credit score is calculated could work in your favor. VantageScore has announced that it is updating its formula. The change with the most potential benefit: If you pay off the balance of an account that has gone to collection, VantageScore will not consider it a black mark against you. Under the current version of the FICO score, VantageScore’s major com­petitor, paid-off collection accounts can still have a negative impact on credit scores.

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VantageScore is also changing its scale to match FICO’s range of 300 to 850, making the two easier to compare (although the numbers won’t be identical). And VantageScore claims that it could provide credit scores for 27 million to 30 million consumers who are now scoreless. Its new formula permits scores for anyone who has had an account reported to the credit bureaus in the past two years, rather than just the past six months. That could be good news for, say, retirees, who may have an infrequent need for credit, says Gerri Detweiler, director of consumer education for Credit.com. You can purchase your Experian VantageScore for $8 at www.experian.com; the new version of the score should be incorporated into the three major credit agencies’ product lineups later this year.

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There is a catch: Only an estimated 5% to 10% of lenders use VantageScore, with credit card issuers among the heaviest users. If you’re thinking of applying for a loan, purchasing your FICO score ($20 at www.myfico.com) will probably provide a better idea of what your lender will see. Still, the revised VantageScore could make waves in the credit-scoring industry if lenders warm up to it as a more accurate predictor of consumer creditworthiness.

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