November 18th, 2010

A New Generation of Credit Scores: Credit Undergoes A Makeover

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credit score change

It’s no secret that consumer credit behavior has changed—with higher risks of default, vast unemployment, and increased rate of homeowners walking away from their mortgage—and credit scores are changing with these rocky times.

An emerging new generation of credit score models is the VantageScore 2.0 and FICO 8 Mortgage Score, revisions of the current VantageScore and FICO formulas that are modified and fine-tuned to better detect credit risk and improvement patterns.

The purpose to better identify future default, score consumers more accurately, and help lenders choose and price the right customers. Let’s take a look at the changing face of credit.

Why the changes?

Consumer creditworthiness has deteriorated since the recession hit consumers and went into full swing in 2007. According to a Los Angeles Times article, probability of serious delinquency—which is defaulting payments for 90+ days—has increased 417% among sub-prime borrowers (in the lowest credit score range) between 2007 and 2009. For other credit range of prime and near prime consumers, it is still over a 400% increase across all levels.

In addition, record levels of foreclosures and strategic defaults—which occur across the credit score spectrum from sub-prime to the credit elite—have skyrocketed in nearly every state. More and more consumers are skipping on mortgage payments in order to pay mounting credit card bills. Surprisingly, even good credit score consumers are engaging in strategic defaults.

The companies behind FICO and the VantageScore, different credit score model competitors, are making changes to the way credit scores are calculated to coincide with this change in consumers’ creditworthiness and financial behavior. In the wake of the housing bust and economic recession, these changes intend to make credit scores better reflect consumers’ real-life credit standing, and help lenders better evaluate potential borrowers.

So, what’s new with credit scores?

To cope with this change in consumer credit behavior, FICO and VantageScore are making revisions—that remain a secret, since credit score models are notoriously guarded—that hope to do the following:

  • VantageScore, which is a joint venture between the three major credit score bureaus, is looking to identify emerging behavioral patterns associated with defaults. Using information from 45 million active credit files, the new VantageScore 2.0 seeks to identify subtle red flags that may indicate credit stress and growing risks of defaults.
  • FICO, which offers several credit score models, is rolling out with FICO 8 Mortgage Score used specifically by mortgage lenders to analyze consumers’ credit reports for warning signs of strategic default. FICO claims the new Mortgage Score can be 15% to 25% more accurate than the standard FICO model in predicting future default.

What does this mean for you?

What kind of warning signs are these new models measuring? As usual, the specifics around credit score models remain proprietary secrets of the companies. We don’t know what exactly will be judged as a “red flag” in your credit history, but this is a good indication that lenders are tightening up lending standards and making strides to shrewdly pick out risky borrowers from good customers.

Consumers will be affected if the lender they are applying for happens to adopt and use the VantageScore 2.0 or FICO 8 Mortgage score, both slated to be out in 2011. On the plus side, you could get a better deal and lower rate if these scores work to your advantage. But if your credit history happens to be waving a few red flags, your sweet deal on your loan could end up being worse than you expected.

Credit scores aren’t the only thing that lenders are looking for and you need to watch out for; check out our recent LearnVest article for the new ways financial institutions are checking up on your creditworthiness, from your utility bills to your banking statements.

Disclaimer: All information posted to this site was accurate at the time of its initial publication. Efforts have been made to keep the content up to date and accurate. However, Credit Karma does not make any guarantees about the accuracy or completeness of the information provided. For complete details of any products mentioned, visit bank or issuer website.


  1. I will never really understand why these things are such gaurded secrets. I mean, what are they afraid of? People learning what is wrong with their credit and actually fixing it? It just feels like something that is so important to today’s world should be a bit more open and understood by those that it affects so much.

    ack154 at 6:29 pm on November 18, 2010
  2. Wow! I am an excellent customer under the traditional FICO score. But this new scoring I am not looking that great. Seems strange to me.

    Brian at 10:56 am on December 16, 2010
  3. Given the recent history of credit rating agencies giving AAA ratings to doo-doo, the purpose of ratings is to make bad things look better than they are. My best guess is that the super-secret new consumer credit rating system is trying to figure out how “hooked in” to the system the borrower is. If you carry small balances, pay cash for your (used) cars, or have a mortgage in a non-recourse state, you are not very “hooked in” and are therefore considered a “flight risk” even if you have been very dutiful about paying your debts. I suspect this new system will backfire in a big way somewhere down the pike.

    Neil at 5:47 pm on December 16, 2010
  4. Maybe these new guidelines for determining credit worthiness are based upon race, culture, education and sex(M/F) and they would get raked over the coals if it got out.
    I wouldn’t put it past them. When do we receive the mark of the beast in our foreheads in order to buy and sell? This is indeed a wicked generation and getting more so as evidenced by these secret scores.

    Ron at 6:24 pm on December 16, 2010
  5. OK, so my regular (Transrisk) score is 563, but the VantageScore is 705. What does this really mean, and when will the change take effect for everyone?

    Michael Shafer at 8:21 pm on December 16, 2010
  6. @ack154 if everyone it wasn’t a secret, then they wouldn’t be able to make money off of everyone.

    irkage at 1:31 am on December 17, 2010
  7. High credit score does NOT indicate winning finacially. Dave Ramsey. It just means you have borrowed money and paid it back. It’s an I love debt score. Pay cash.

    Benjamin Custer at 4:05 am on December 17, 2010
  8. I love how with the new score my spotless record suddenly becomes worthwhile of a “C”. What the hell banks!?

    Oranges at 5:27 am on December 17, 2010
  9. I pulled my score after the ‘new generation make-over’. The rating is now labeled ‘transrisk’ score. The number was identical to previous ratings. When I applied for refinance a few months back the lender received scores that were 60 to 70 points higher from all 3 credit bureaus. As result of these huge differences I only use credit karma to track changes in what they previously reported.

    JD at 2:05 pm on December 17, 2010
  10. OK, all you conspiracy theorists, if you ran a company that produced sweater vests, would you go out on the streets and hand out sweater vests indiscriminately to everyone in the world? And then build free factories for other companies to make them, as well? No. So why do you expect a company that supplies information (credit scoring models) to hand it over to the public and other companies so that they can make or obtain their own at no cost?

    Micah at 10:34 am on December 18, 2010
  11. There is incorrect use of “super-prime” term in the article: as “borrowers … in the lowest credit score range”.
    And again: “across the credit score spectrum from super-prime to the credit elite”.

    Don’t confuse sub-prime with super-prime.

    Andrey at 7:16 am on December 19, 2010
  12. JD – You are absolutely correct. I have outstanding credit, only a home mortgage, never been late with a payment, very little credit card debt and no car payments. Credit Karma says mt credit score is 759 but I recently obtained my real credit score and it was 819. 60 point difference to the number just as you said. Now this “new” system says my score is 891 for a “B” rating. I highly doubt it is accurate. I agree with you completely, use it to watch for sudden changes in your score and nothing more than that.

    vgpow at 6:22 am on December 20, 2010
  13. These free scores from crredit Karma are not to your actual scores, but give you some sense of what range.Your actual scores and probaly higher or lower depending on a lot.But the best thing this is for and people and un aware is to bump inquirires from your Transunion file.At Transunion your file has alimit amount of space.So I updated my score everyday or as much as possible.It has bumped one or 2 inquiries off my file.

    wayne6372 at 2:30 am on December 24, 2010
  14. Isn’t it amazing how they change the rules so frequently and in the middle of the game. The credit bureaus do not have the interest of the conumer in mind.

    My Transrisk score has gone down, down, down as I have worked to re-establish my credit. It went down significantly when I paid off my 2nd mortgage. Why does that make me a credit risk.

    This week it has gone down 9 points. And what has changed? I’ve paid down a credit card slightly, I’ve paid down my car payment and two other personal loans, I have a longer history of on-time payments, my accounts grew another month older, it’s been longer since I had an inquiry, by credit card limits are unchanged and my debt to income ratio has decreased slightly.

    I’m advising you consumers. Don’t use this web site for the purpose of obtaining a new credit card. It will be your demise. They will hook you and crook you. You must know by now that the rules will change again in the middle of the game.

    And as this new system changes our credits by lowering them, we will be paying more. If they change the system so that it lowers the publics credit score by even and average of 10 points, the financial institutions will make billions off of higher fees and interest rates.

    Pay off your debts before everyone gets trapped in another quagmire. The banks are going to lose billions on morgages as the foreclosure rates increase. Housing values will depreciate and for the most part homeowners will lose liquidity. As that happens, you wil be come a greater credit risk and they will have you where they want you.

    Someone is going to pay for what the banks lose in mortgages. I think it will be the credit card users that carry a balance.


    JohnNKC at 1:04 pm on December 30, 2010
  15. Something is not right. I go from a 70 percentile too a 30 percentile from TransRisk to VantageScore. Am I a potential strategic defaulter because my house is paid for and I recently paid off a small car loan? This is foolishness I am apparently being penalized for having assests. I have an 6% average debt to income ratio with an annual december to january increase to 11% (business shuts down for december)If this is not corrected by the industry I will strategically live in a cash only world the plastic conveinence is onlt worth it if it is conveinent.

    Jimbo at 11:15 am on January 14, 2011
  16. EDIT
    If this is not corrected by the industry I will strategically live in a cash only world. The plastic convenience is only worth it if it is convenient.

    Jimbo at 11:19 am on January 14, 2011
  17. Will someone explain to me why I take such serious credit hits when I’m looking to change insurance companies and satelite TV companies.
    I will save money by switching insurance companies but I get a hard inquiry by doing it, making my credit go down. Same if I switch from direct tv to dish. Why are these the same to FICO as if I applied for a new credit card?

    kurt s at 8:27 pm on January 16, 2011

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