New Credit Scoring System

Tracking and improving your "credit score" may become easier in the future, due to a major change in the overall system. It will also speed processing of your mortgage application by lenders. Your personal credit score plays a key role in determining if you can obtain a needed mortgage and the terms available to you on that loan. If you are planning to apply for a mortgage in the future – to finance a home purchase or refinance an existing mortgage – it would be wise to learn what your credit score is and take steps to improve it.

Basically, the scores are designed to help lenders determine the creditworthiness of loan applicants. It provides a viable indication of the capability and likelihood of a loan being repaid by the borrower. There are three major consumer credit bureaus that now independently calculate and report to lenders an individual’s credit score. They are Equifax, Experian and TransUnion. Scores often vary substantially as reported by each of those bureaus.

With the new development, the three bureaus are cooperating in a venture that will make it easier for mortgage lenders, and others, to evaluate mortgage applications, and give consumers a better way to measure and improve their score. The bureaus have introduced a new system, "VantageScore," that will use one shared system to calculate all scores. The score still may vary a bit, due to the intake of data by individual bureaus, but the calculating system will be the same. It’s still in development but should be fully implemented soon.

The new VantageScore is a direct result of market demand for a more consistent and objective approach to credit scoring methodology across all three credit reporting companies, it was stated in a news release from the three bureaus. This approach is unprecedented in the marketplace. By combining cutting-edge techniques with a highly intuitive scale for scoring, the new system will provide consumers and businesses with predictive, consistent scores that are easy to understand and apply. The new scores will range from 501 to 990. The higher the number, the more creditworthy the loan applicant.

The best way to improve your score is to pay all bills on time, keep account balances low, and take out new credit only when you really need it. Also, obtain a current copy of your credit report and take immediate steps to correct any errors. This can usually be accomplished by calling or e-mailing the bureau that issued the report containing the errors.