Refinancing? Know Your New Vantage Score

For lenders and borrowers alike, there are few criteria in the refinancing process as scrutinized as a credit score. FICO is a system that pools credit data from the credit bureaus Experian, TransUnion and Equifax, and produces a numerical grade that indicates your worthiness as a borrower. A FICO score is based on factors that include current debt load, payment history, credit currently in use, length of credit history, and any types of new credit.

The irony is that this method of evaluating your credit worthiness sometimes produces more questions than it answers. While the rule of thumb is that anything in the 720s and above is a good score, a lower number lacks definition and may confuse a lender.

The new VantageScore, which is offered by all three of the credit union agencies, does offer some relief to this quandary. It still uses the same evaluation factors as a FICO score. But along with a lower price tag (one free report per year, and additional viewings at $5.95), it offers some notable differences.

Overall, the VantageScore's evaluating guidelines are the same as FICO scores; too much debt with poor payment history will result in higher scores for consumers. However, the new system provides greater definition of what the numbers mean, which is potentially helpful for borrowers who want to refinance their mortgages, but whose FICO scores are considered too high.

Improved Definitions: Now, instead of a raw score, VantageScore assigns a letter grade. The raw numbers range from 501 to 990, and letter grades are assigned for each hundred-point increment. For example, a score of 901-990 would equal an "A."

The scores also include some real-world applications. A VantageScore report tells you how increased debts could affect your credit evaluation. If you're in the market for a mortgage refinance, you may learn that it's worthwhile to forego that shopping spree at the mall.

Easier for Subprime Borrowers: It can be rough going for borrowers who have little or no credit history and are interested in mortgage refinancing. Generally, these people score low on FICO and are relegated to loans with higher interest rates. The VantageScore claims to provide a more accurate assessment of the credit-worthiness of these individuals-potentially paving the way for better rates.

Keep in mind that both a VantageScore and a FICO score are just one piece in the lender's assessment of you. Many times, there are legitimate explanations to poor credit histories, and lenders may take these into account. If you'd like an invaluable tool for refinancing, and some help finding a good rate, check our your VantageScore. It may give you a big advantage.