VantageScore: A New Way to Figure Credit Scores

Dave Ramsey doesn’t have one.  I didn’t have one when I first graduated from college.

What am I talking about?  A credit score.

Our reasons are different–Dave Ramsey shuns credit, and as a recent college graduate, I hadn’t yet opened a credit card account nor bought a car with a car loan–but we were still in the same situation.  So, how did a recent college graduate making less than $35,000 a year get lumped in the same high risk category with Dave Ramsey?  Simple.  FICO didn’t have a score for either one of us because we hadn’t used credit in the last 6 months.

Life Without a FICO Score

Of course, if you’re Dave Ramsey earning a gazillion dollars a year (just joking, sort of), you don’t really need a credit score.  You can pretty much buy what you need with cash.

However, if you’re like the majority of Americans, you need a credit score to do the most basic of things like rent an apartment or qualify for a car or home loan.  (Okay, if you follow Ramsey’s advice to stay out of debt, you don’t need to qualify for a car loan, but you still likely need a home loan.  Besides, many landlords routinely ask to check your credit before agreeing to allow you to rent their apartments.)

For many, then, there is a problem.  How can you shun credit cards as Ramsey advocates and yet still have a credit score?  For years, the answer used to be–you can’t.

However, CNN Money reports that hope might be on the way in the form of a VantageScore.

What Is a VantageScore?

A typical FICO credit score simply looks at the last 6 months of your credit history.

VantageScore, which was created by the three credit bureaus (Experian, Equifax and TransUnion) and unveiled in 2006, instead looks at 24 months of payment activity including payments that don’t require credit cards such as rent or house payments and utility payments.

How Many People Could Benefit from VantageScore

According to CNN Money, nearly 64 million Americans don’t have enough credit history or activity to generate a FICO score.  Of that group, 10 million have excellent credit, and another 20 million have good credit.

Currently, many banks and other lending institutions are missing out on those consumers because they essentially have no FICO score.  The VantageScore would show that these consumers are attractive to lenders because they are responsible with their money.

When Will VantageScore Become Mainstream?

For people without credit to benefit, VantageScore must become more mainstream.  Currently, almost all lending institutions rely on the industry standard, the FICO score.

Until VantageScore becomes mainstream, if you are one who shuns credit, you may be faced with a difficult decision–either use credit sparingly every month and pay it off immediately, or save enough money to pay for everything you need in cash.  (This, of course, is Dave Ramsey’s preferred method.)

Do you use credit just to keep a high credit score, or, like Dave Ramsey, do you shun credit?  If you shun credit, have you had problems with not having a FICO score?

 

Who Wants to Talk Stocks?

Stocks, and the stock market in general are not a normal part of the content here.  That’s almost entirely because I don’t have a lot of money invested in the stock market, and, as a result, I don’t do a whole lot of trading of stocks.  But, I do have a few accounts here and there, and I’ve managed to do semi-well with my investments over the long term.

But, I’ll leave it up to you.

The things you won’t get from any articles I write about stocks or the stock market:

  • Well analysed stock picks: Yeah, that’s just not going to happen.  At least not yet.  I don’t know enough about analyzing a stock in the way that a professional would.  If you want professional picks, try the Wall Street Stock Forecaster.
  • A well-rounded, balanced look at all of the stocks: Some of them, I just bought because I like the company.  More savvy investors will likely scoff at that, and maybe call me names.
  • No guarantees:  I can’t even guarantee that I’ll make any money on any of the stocks that I talk about, so I certainly am not going to guarantee you that the stock is any good.

What you will get from my stock/stock market articles:

  • Stock picks: Yep.  They might not be very well analysed, balanced, or even guaranteed to be any good, but that shouldn’t stop us from being able to discuss them.
  • Insight into my thought process when buying each of them: The what, why, etc of each of my stock picks.
  • Peace of mind: You’ll most likely have found someone who is a worse investor than you are.

So, what do you say?  Should we discuss my stock portfolio?  Leave a comment below and let me know!

Are You Prodigal?

I have to admit a bit of ignorance here folks.  For years, I associated the word Prodigal with the word Prodigious.  They have the exact same root structure, only different suffixes.  Prodig -al -ious.  Whoops.  The story of the Prodigal Son should have tipped me off, but never did.  It wasn’t until I was reading the opening chapter of Popes and Bankers (that I received for review) that I realized my mistake.  Here’s the definition of Prodigal as it is shown at dictionary.com:

–adjective
1.wastefully or recklessly extravagant: prodigal expenditure.
2.giving or yielding profusely; lavish (usually fol. by of or with): prodigal of smiles; prodigal with money.
3.lavishly abundant; profuse: nature’s prodigal resources.

–noun
4.a person who spends, or has spent, his or her money or substance with wasteful extravagance; spendthrift.

You can be prodigal, or you can be a prodigal.  To me, there are several words that jump out from that definition.  Wastefully.  Extravagant. Lavish.  With the exception of wastefully, the others are words that we’ve been conditioned to think of as good.  We want our things extravagant and lavish.  It’s a sign of money, right?

And yet, day after day, we read and write articles on sites just like this one about the other end of the spectrum.  Frugality, Savings, and even Cheap are words that are valued.  Even so, I think that each of us could find an example or two in our lives where we are prodigal.  A pretty strong argument could be made that cable TV is a prodigal expenditure.  A third car.  Eating Out.  Leaving your computer on.  If we keep going, we could create a very long list!

What’s my point, you may be asking?  My point is that, despite all our practicing of frugal lifestyles and saving money, we might still find ways in which we are prodigal.  Rather than beating ourselves up over it, however, I would suggest that we use those things as motivation to eliminate them.  Or to offset them as a whole.  Maybe you’ve chosen to keep cable TV.  Find a way to reduce spending in another area to make up for that monthly charge.  The single expenditure may remain prodigal, but your overall spending does not.

Which brings me to a further point.  We often beat ourselves (and each other) up over spending too much here or there.  We miss the forest for the trees.  Being prodigal in one area does not make you prodigal overall.  And let’s not forget that being miserly or cheap can be just as poorly looked upon.

Added: It looks like I’m not the only one thinking about these things today.  Check out The Balance between splurger and miser at Get Rich Slowly.

Note: This post was originally posted on March 18th, 2010.  It was somewhat popular then, and is worthy of a second look, so I’m re-posting it today.