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Apr 25, 2017
7:51:24am
Skeptical Optimist All-American
Major changes to credit score calculation
Probably already posted, but I just saw this story. The Vantage Score calculation is changing to use trended data, meaning that your credit score will be affected by trends rather than a snapshot. Previously if you had high utilization (a high balance compared to your overall credit limit), your credit got dinged. But now, your credit score will be calculated on whether or not your utilization is improving or not. So even if you have high utilization, if utilization is going down, your credit score improves.

The biggest negative for this change is that it also lowers your score if you have a high amount of available credit, even if it's not utilized. This will impact many people who have high credit scores today because they most likely have higher credit limits on their cards.

This also means there is are conflicting methods for how your credit is calculated. Your FICO score isn't changing, only your Vantage Score. Your FICO score is used by just about every mortgage lender (Fannie/Freddie requirement), and most other loans (FICO claims they are used for 90% of credit decisions). Vantage Score is a relatively new credit score created to compete with FICO, and more lenders are using it these days (article says 8 billion applications last year used Vantage Score). Credit Karma uses your Vantage Score. FICO is based on payment history and low utilization of available credit. So people with high limits and low utilization have better FICO scores. But now Vantage is weighting low available credit and utilization that is trending better, so you are dinged with high limits and low utilization.

Bottom line - if you are applying for a mortgage, you probably want to keep your accounts open with high limits to keep your FICO score up. If you aren't, you may want to look into closing accounts or lowering limits so your Vantage Score improves.

http://www.cnbc.com/2017/04/19/major-changes-coming-to-how-your-credit-score-is-calculated.html
Skeptical Optimist
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Skeptical Optimist
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