A Credit Scorer Gets Charitable

A Credit Scorer Gets Charitable

Your credit score: the three little numbers that can make all the difference when it comes to some of life's most importance purchases, from cars to homes.

A criticism of credit scoring is how it doesn't differentiate: Someone with a stray medical bill that goes to collections without his or her knowledge looks the same to lenders as someone who goes on frequent shopping sprees they can ill afford.

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VantageScore Solutions, a credit score generator, is looking to change that. According to The New York Times, VantageScore will no longer consider collections reports when calculating credit scores as long as the debt was repaid. The decision was made not out of sympathy for unwitting consumers, but because paid collections debts don't predict how reliable a borrower is as much as other factors.

The company's research found that a consumer with a paid collections debt is about three times as likely to default on a loan than someone without a collections report. Someone with an unpaid collections debt is seven times as likely to default than a consumer without any debts in collections. The most reliable data, they found, came from looking a combination of factors: unpaid collections debt, age of accounts and size of loans.

Unfortunately, the impact of this change isn't likely to be significant; far more lenders use FICO credit scores than VantageScore ones. FICO's current rule when dealing with collections is to ignore any collections debts under $100. But maybe, with the ever-increasing amount of information scorers can use to evaluate consumers, FICO will follow VantageScore's lead.

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