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You have a poor credit history, or none, so you can't get a loan, right? Not true anymore. The three major credit bureaus—Experian, Equifax, and TransUnion—have teamed up to create a new scoring model for calculating credit scores in the 3.0 version of VantageScore.

Lenders use your credit score to determine your ability to handle financing, like a mortgage or car loan. VantageScore 3.0 might help you and millions of others establish a credit history, access loans, and perhaps boost scores.

While the traditional and most popular scoring model, the FICO score, still will be around, the VantageScore is gaining ground. Seven of the top-10 financial institutions, six of the top-10 credit card issuers, and four of the leading auto lenders and mortgage lenders are using it today.

Here's what you should know about VantageScore 3.0 and FICO:

1.      Paid-off collection accounts matter. If you settled or paid a collection account in full, VantageScore will not count it against your score—as long as the balance is zero. FICO will factor it in for as many as seven years, even if you pay it off.

2.      Previously unqualified consumers benefit. The new VantageScore system could help you qualify for more competitive credit rates by weighing rent, utility, and telecom payment records. If you have a very limited credit history, you are invisible to FICO.

3.      Natural disaster victims get a break. If you're the victim of a natural disaster, VantageScore 3.0 allows you to benefit from good credit behaviors, such as making payments on time. The new system will protect you against negative accounts by ignoring them. FICO ignores both positive and negative accounts, making it difficult for you to improve your score.

4.      New scoring range aligns with FICO. VantageScore is changing its scoring range to align with FICO's 300 to 850 range. Earlier versions of the VantageScore system ranged from 501 to 990. This mismatch often caused confusion for American consumers and lenders.

FICO may take up some of VantageScore's methods. The agency has announced that it will begin looking into ways of factoring in alternative records to calculate scores for those without or with limited credit history.

Published June 10, 2013

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