New Credit Score System Could Improve Credit for Struggling Consumers
Traditional credit scoring methods such as FICO have long confused consumers.
On the one hand, carrying too much debt will hurt your score - even if you can manage to pay it off. On the other hand, not having enough debt also leads to a low score.
Now a new credit score system could make things simpler for millions of Americans.
VantageScore 3.0, the newest score used by major credit bureaus Equifax, Experian and TransUnion, could help boost scores for consumers with damaged credit and build credit for those without much credit history.
For instance, folks without major loans such as mortgages, car loans or credit card debt often have low credit scores - or no score at all - as a result of their limited credit usage. The new scoring model will factor other payments such as rent and utility bills and even bankruptcy payments into the picture, improving the ability to build credit.
With FICO, debts that go into collections will appear on a consumer's credit report for seven years, regardless of whether those debts get paid off. VantageScore ignores these accounts once they are paid or settled.
Another problem with traditional scoring methods is their treatment of Americans who have suffered a natural disaster. Previously, victims of a hurricane or flood had their accounts shut down following the catastophe. That way, they couldn't be dinged for missed payments - but they also couldn't benefit from good behaviors, such as paying on time.
In the aftermath of a natural disaster, VantageScore will ignore negative behaviors but continue to track good behaviors, allowing victims to boost their scores - and their chances.
The more logical scoring system could increase opportunities for countless Americans.
Currently, many people avoid effective debt relief solutions such as bankruptcy because they fear their credit scores will take too much of a toll. With VantageScore, consumers can be rewarded for their efforts - not punished for their past.
Of course, even with FICO the effect of bankruptcy on credit is frequently overestimated. Remember, by filing for bankruptcy you have the ability to eliminate debts that led to your bad credit score in the first place.
With your debts wiped clean, your family can finally move forward. Bad credit no longer has to keep you from enjoying financial freedom - and your life.
If you have questions about how bankruptcy fits into your financial situation, talk with one of our experienced credit repair attorneys. Call DebtStoppers at 800-440-7235 to schedule your free personal debt evaluation with a professional bankruptcy attorney.
More Blog Entries:
Without Good Debts, More Young Consumers Unable to Get Loans: March 4, 2013
New Credit Score Could Help Millions, by Blake Ellis, CNN Money