Toward broader access to homeownership for all

Dear Colleague:

Since our launch a decade ago, VantageScore Solutions has been committed to expanding access to mainstream loans for creditworthy consumers—especially those who cannot receive credit scores when competing credit scoring models are used. 

What we didn’t fully appreciate at the outset was how much those efforts would support another mission to which we’ve become equally dedicated—helping diversify the ranks of American homeowners so that they better reflect our country’s ethnic richness. 

VantageScore began with a belief that scoring models could be made more inclusive without sacrificing accurate default-risk predictiveness. Our data scientists have confirmed this belief after much rigorous statistical analysis. Using newer, mathematically validated techniques, they designed our models to make better use of consumer credit-file information, including newly introduced granular data and rental- and utility-payment histories. We also optimized VantageScore models to accurately score more “thin-file” consumers—newcomers to the credit market or those who use credit infrequently. 

VantageScore’s commitment to score more consumers took a huge leap forward with the introduction of the VantageScore 3.0 model, which scores 30-35 million consumers who are invisible to competing models. After the VantageScore 3.0 model was completed, our analysts took a look at who those previously unscoreable consumers were, and learned that a significant portion of them come from ethnically diverse populations. Recognition of our ability to effectively score more diverse grous of consumers has helped VantageScore cement strong, supportive relationships with a number of homeownership-advocacy groups, including the National Association of Hispanic Real Estate Professionals (NAHREP), the National Bankers Association (NBA), and the Asian Real Estate Association of America (AREAA)

We at VantageScore were pleased to see that the theme of broader access to homeownership and the need to update credit-scoring policies were both included in the platform unveiled at the recent Democratic National Convention:

We must make sure that everyone has a fair shot at homeownership. We will keep the housing market robust and inclusive by supporting more first-time homebuyers and putting more Americans into the financial position to become sustainable homeowners; preserving the 30-year fixed rate mortgage; modernizing credit scoring; clarifying lending rules; expanding access to housing counseling; defending and strengthening the Fair Housing Act; and ensuring that regulators have the clear direction, resources, and authority to enforce those rules effectively. We will prevent predatory lending by defending the Consumer Financial Protection Bureau (CFPB). These steps are especially important because over the next decade most new households will be formed by families in communities of color, which typically have less generational wealth and fewer resources to put towards a down payment.

Expanding homeownership access without compromising credit standards is also a central theme of a recent opinion article in Mortgage Banking magazine that I co-authored with Mark Fleming, chief economist at First American Financial Corp

Regardless of political leanings, we believe that this is a cause we all can get behind.

Best regards,



Barrett Burns

Potential Removal of Tax-Lien and Civil-Judgment Data from Credit Files Would Not Significantly Impair VantageScore Model Performance

The predictive performance of the VantageScore credit scoring models would not be impaired significantly if the three national credit reporting companies (CRCs—Equifax, Experian and TransUnion) were to institute several changes under consideration in their treatment of public-records information.

The CRCs are considering various changes as part of the National Consumer Assistance Plan (NCAP), an initiative launched by the CRCs in March 2015. The NCAP is designed to improve the accuracy of credit reports and make it easier and more transparent for consumers dealing with their personal credit information. 

Developed in conjunction with the trade group Consumer Data Industry Association (CDIA), the NCAP includes a review of all aspects of consumer-credit data reporting and management. Its final determinations have not been disclosed yet, but options under consideration include the CRCs’ removal of some or all of the tax-lien or civil-judgment records from consumer credit files. 

In light of that possibility, VantageScore Solutions analyzed what impact the removal of those entries could have on consumer credit scores calculated using the VantageScore 3.0 credit scoring model. 

Tax liens and civil judgments are among the many potential credit-file entries that scoring models evaluate when predicting the likelihood that any given consumer will default on his or her loan payments—i.e., by going 90 days or more past-due on a payment. Tax liens and judgments are known to be valid predictors of future default. The loss of those entries or any other predictive data could hinder the effectiveness of a credit scoring model—both in its ability to accurately assign scores to individual consumers and to accurately rank order consumers according to their likelihood of default.

Methodology and results 

VantageScore’s team of decision-analytics scientists obtained credit files for four million consumers from one CRC and compared the scoring results before and after the removal of all tax liens and civil judgments from those files—a scenario representative of the “maximum-impact” treatment of tax-lien and judgment records.

The analysis, now available as a whitepaper entitled “Impact to VantageScore 3.0 Credit Score Model From Revisions to Public Record Reporting,” reveals a number of important findings, including:

  • Removal of tax-lien and civil-judgment records led to changes in VantageScore 3.0 scores for slightly more than 8 percent of the scoreable U.S. population.

  • For that fraction of the population whose scores changed, the average difference was a score increase of 10 points.

  • The VantageScore 3.0 model’s predictive performance decreased only slightly. There was minimal impact because each scorecard within the model considers multiple derogatory factors, so that other, overlapping negative information in the credit files that were affected largely compensated for the removal of the tax liens and civil judgments.

As details of the NCAP emerge, it is possible that the decision will be made to retain some of these data in the credit files, and the negative impact on model performance could be even less than that observed under the “maximum impact” scenario tested by VantageScore.

What are the credit-score impacts of debt consolidation?

By John Ulzheimer
The Ulzheimer Group

You can’t turn on your television or fire up a browser without seeing an advertisement extolling the benefits of consolidating your debts—and a loan offer to help make it happen. The value proposition for consumers who qualify for these loans is pretty straightforward: cheaper debt is better than more expensive debt. By moving an outstanding balance on a higher-interest loan to one with a lower interest rate, you can save a significant amount of money. 

Examples of debt consolidation can include paying off multiple high-interest credit cards with a newly opened low-interest credit card, or paying off multiple student loan obligations with a home equity loan or line of credit. Most, if not all, large credit card issuers offer a “no interest” balance-transfer option. This allows consumers to move their balances from existing credit cards, with interest-accruing balances, onto a newly opened credit card, on which no interest is charged on either the transferred balance (or any additional purchases made) for a period of up to 18 months. That’s a great way to reduce your monthly payment obligations and more quickly pay off the balance owed. 

But how will your credit score be impacted if you do this? Regular readers of The Score know that applying for and accepting new credit can cause a dip in your credit score—one that typically recovers within a few months, as long as you continue making all your payments on time. 

Setting aside those temporary downturns, debt consolidation could bring a significant improvement to your credit score. It’s no secret that credit card balances at or near the borrowing limit can lead to significantly lower credit scores, especially if several cards are close to their reported credit limits. The metric in question here is what’s formally referred to as your revolving utilization ratio or, more informally, your debt-to-credit limit ratio. The higher that ratio, the more problematic for your credit scores. 

This metric, which is extremely influential to the calculation of your credit scores, only considers the balance and credit limit information on credit cards. This would include general-use cards like Visa, MasterCard, Discover and some American Express products. It would also include gasoline cards and retail store cards, as long as they have revolving terms.

If you have several credit cards with balances and you use a personal loan to pay them off, you’ll accomplish two things that are both very helpful to your credit score.  First, you’ll reduce the number of accounts with a balance greater than zero. Second, and more important, you’ll be reducing that influential debt-to-credit limit ratio, perhaps to zero if you pay off all of your credit card debt with the personal loan. 

Another way debt consolidation can positively influence credit scores is by improving the mix, or variety, of loan types in your credit file. Credit scoring models typically reward a blend of different credit types—some combination of revolving credit—loans like credit card accounts, in which the loan amount can vary over time, and installment loans in which you pay off a fixed loan amount in a set number of monthly payments, or installments. Using a personal loan to pay off credit card balances converts revolving debt to installment debt and increases your credit mix. Doing so can be very helpful to your credit scores, despite the fact that it doesn’t reduce your overall debt by even one penny. 

All of which suggests a couple of caveats: First, make sure you read and understand all the terms and conditions of any new loan, including the nature and duration of any low- or zero-interest-rate introductory periods, to avoid unexpected fees or penalties. Second, and we hope this is fairly obvious: If you qualify for a loan that helps you reduce your credit card debt and raise your credit score in the process, don’t take the resulting improvements for granted. Try to avoid accumulating additional debt—and especially running up additional high card balances, until you’ve paid off, or at least made significant progress against, that consolidation loan. And once you’ve caught up with your debts, take care to avoid running up excessive balances in the future. You’ll be rewarded with steady improvements in your credit score.

Did You Know…The optimal credit card utilization percentage is…

It’s no secret that debts recorded on your credit reports can influence your credit scores. And, it’s also no secret that your credit score is more heavily impacted by credit card debt than installment debts, such as auto loans and mortgages. So how can you best continue to use credit cards without causing an adverse impact to your credit scores? The answer is controlling your utilization percentage.

First off, what is the utilization percentage? The utilization percentage, also referred to as the debt-to-limit ratio, represents the amount of your aggregate credit card debt divided by your aggregate credit limits on your credit card accounts. For example, if you have three credit cards, each with a $1,000 balance and a $2,000 credit limit, then your debt-to-limit ratio is 50% because $3,000 divided by $6,000 is 0.5.  Add the balances on the credit card accounts and divide that figure ($3,000) by the sum of the credit limits ($6,000). The lower this percentage, the better it’s going to be for your scores.

The million-dollar question that seems to have many answers is, “What is the highest debt-to-credit limit ratio that won’t lower my credit score?” The answer to that question, as it is with almost all credit scoring questions, is “that depends.” VantageScore experts routinely recommend that consumers keep levels at or below 30 percent, and various articles advise levels from 10 percent to 50 percent. The optimal ratio always will be as close to zero percent as possible, but it’s still possible to have elite credit scores with higher ratios. 

One thing to consider as you’re contemplating the issue of the debt-to-limit ratio is how the scoring models come to understand your balances and credit limits. They receive information about your credit card accounts from your credit reports. So, the balance and limit amounts on your credit reports are going to be the figures used in the calculation of your utilization ratios. This is important to keep in mind because some consumers mistakenly believe the ratio is based on whatever your balances happen to be at the moment a score is calculated. If you make an electronic payment today to pay down an outstanding balance, your lower utilization ratio probably won’t be reflected in a credit score pulled tomorrow because it takes time for your lender to report the change in balance to the three major credit reporting companies (Equifax, Experian and TransUnion) and for that lower balance to be reflected in your credit report. 

If you’re able to control your usage percentage to the point that you can pick and choose what that percentage is going to be in any given month, then you probably have the ability to pay your balance in full rather than carrying a balance from one month to the next. And, if you are going to pay your balance in full by the due date, consider instead paying it in full by the statement closing date, which is the date on which your billing cycle ends, your balance is determined and your monthly statement is cut. If you time your payments in this manner on a regular basis, you can maintain a zero balance on your statement. In addition, because credit card issuers generally report your statement balance to the credit reporting companies, a zero balance on your statement should soon equate to a zero balance on your credit reports, which is fantastic for your credit scores. 

You always should shoot for the lowest utilization percentage that’s realistic for you. If the best you can manage is 80 percent, at least it’s better than 90 percent. Hold to that, and strive to get 70 percent, then 60 percent, and so on. Generally speaking, the people who have the highest scores have a utilization percentage below 10 percent. 

If, however, you fall in love with any one target percentage, such as 30 percent or 50 percent, you run the risk of shooting either too high or too low because there is no one magic number that fits everyone. The presence or absence of other types of credit-related transactions in your credit file can affect the  degree of influence that percent-utilization has on your score. Of course, sources in the industry are going to give you a general idea of what that utilization level should be, but with over 200 million people with scoreable credit files it’s not as simple as just saying everyone should focus on any one percentage. That’s simply not realistic. But if you keep your utilization level at or below 30 percent, as VantageScore recommends, that percentage will prevent most consumers’ scores from dropping, and that’s why VantageScore uses it as a guideline.

Five Questions with Nick Clements, Co-founder,

Nick Clements writes about consumer-credit issues at the personal-finance website he co-founded,; at, where he is a regular contributor; and in his recent Forbes e-book, Secrets from An Ex-Banker: How To Crush Credit Card Debt. As the title indicates, Clements launched his career as a consumer banker. At institutions such as Citibank and Barclays, he expanded banking in Mexico, helped pioneer credit cards in Russia and ran the UK’s largest credit card company. 

In his official Forbes bio, Clements sums up his philosophy this way: “I believe that basic banking and borrowing have become too complicated and too expensive. And I believe that technology is poised to change everything, empowering people with information, choice and dramatically better value.” He elaborated on those views in a recent e-mail exchange with The Score: 

What are the newest credit card features and trends that you’ve seen gain traction in the industry? 

The biggest visible change all of us have experienced is the introduction of the EMV chip, although no one seems particularly excited about it. Consumer complaints are all over the internet and social media about those extra seconds we all seem to be losing at the checkout counter.

But I think the most meaningful trend is the intense competition for new customers, which continues to heat up. Credit cards remain the most profitable lending asset for banks, and 2008 is becoming a distant memory. That means credit card issuers are approving more people, sweetening sign-on bonuses and improving rewards across their product portfolios. Consumers love cash back, and it is now easy to earn 2 percent or more. Consumers love miles, and finding a 50,000-point sign-on bonus is not hard to do. Almost every feature is just getting better as banks battle for customers. 

Your website is a great resource for people who are trying to gain a better grasp on their financial health.  What do you think is the most commonly asked consumer question when it comes to credit cards, and why? 

People email us every day with their questions. Most frequently, people just try to figure out the best credit card for their needs because there are so many choices out there. I think people are suffering from an abundance of choice, and they are looking for help to select the right card. 

Another very common question relates to credit cards and how they impact your credit score. They want to know how much of their credit limit they should use and whether they need to “borrow” money in order to get a good score. The biggest myth that just doesn’t seem to go away is that you need to borrow money and pay interest in order to get a good score. We try to tell people every day that you don’t need to go into debt to have a good score.  

In your e-book Secrets from An Ex-Banker: How To Crush Credit Card Debt, you go over the ways to identify if a person/reader should or should not own a credit card. Turning the tables around, what do you think the credit card industry could do better in order to serve consumers? 

Complexity is the enemy of transparency. When I used to run Barclaycard’s UK business, I asked to see a copy of the original terms and conditions from 1966 (when the product was first launched). It was only one page long. The terms and conditions are now much longer across the industry. Over the years, the simple credit card has become increasingly complex. There are different interest rates for different types of balances, and the interest charged depends upon payment hierarchy. I think the best players in the market are working hard to simplify their product set and communication, but there is still a lot to do. 

And there is one practice that has to go away: deferred interest. It is confusing and too many consumers just don’t understand it.

Your “Perceptions on Time & Money” study encompassed research from six countries and demonstrated the correlation between how a person consumes both time and money.  What are some of the surprising stats that have come out of both the quiz and research?

Financial literacy education has largely been focused on helping people “do the math.” There is an unspoken belief that if you understand how to calculate compounding interest, you will be in the position to make wise financial decisions and live a financially healthy life. But the evidence just doesn’t show that to be true. We found no meaningful correlation between “financial acumen” and “financial health.” 

The UK scored the highest in our global poll for financial health. Having lived in the U.K. for five years, I think consumers there are much more skeptical and have more tools available to help them treat financial products like any other product. In fact, the price comparison websites in the UK (like MoneySuperMarket) inspired me to start MagnifyMoney.  

 As you have chronicled, the credit scoring industry has undergone rapid change recently. What are the one or two most important changes from a consumer standpoint and why? 

I think the single biggest change is that so many more consumers know their score and want to understand in even more detail how it is calculated. Credit scores have a big impact on people’s lives, and for far too long the algorithm lived in a box. Companies like CreditKarma have really been pioneers in making the score, and how the score is calculated, public knowledge. 

But as the box is opened, people start to become more acutely aware of shortcomings and start demanding that the system be even more open and fair. I think that is a good development.  

The second trend is a focus on making the tent bigger. Far too many responsible people are unable to get a credit score. If you pay your rent on time, use your debit card for all of your purchases and save 20 percent of your income every month, you still might not exist from a credit scoring perspective. Although a secured credit card is a nice product, there has to be a better way to get good people credit scores. A lot of smart people are working on this deficiency, and there have been some real improvements. But we still have a long way to go.  

You left a successful career in banking to found What is the website all about, why did you create it and what’s next for 

I get excited by the ability of technology to help people live demonstrably better lives. In the UK, I saw a mature price-comparison market that educated consumers and gave them the confidence and tools needed to find the best savings accounts, cheapest loans and longest balance transfers. When I looked across the Atlantic, I felt like the U.S. market was focused on “lead generation” rather than helping educate consumers and helping them find the right product for their needs.

We have two pillars to our business. The first is content, and this summer we hired Mandi Woodruff from Yahoo Personal Finance as our executive editor. Our team is expanding, and we plan to provide unbiased, actionable answers to every possible personal finance question. Our list of questions is long, and we are just at the beginning.   

Our second pillar is our product marketplaces, where people can compare and shop for financial products. Unlike many companies, we don’t “sell” our #1 position. We rank our products based upon the value to the consumer, rather than the commission paid to us. That means we will make less money than our competitors, but I think we will win consumer trust in the long run. In the year ahead, we will continue to expand the number of product marketplaces, with a few big product verticals in the works.

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