People who use cash advances as a result of a tarnished credit history, may see some changes with a new credit scoring model in the works. Typically, the credit bureaus calculate a score based on a secret algorithm with heavy emphasis placed on management of revolving credit and installment loans. Negative reports stay on file for seven years. They weigh on the scores the entire time. Even debt which went to collections and was then paid in full reflects poorly in the algorithm.
Debt from cash advance is only reported once it is sold to collections.
Because cash advances have no direct affiliation with credit scores, those with poor or no credit often times use these direct lenders to help with emergency costs. For whatever reason, revolving debt is no longer accessible and individuals are looking for ways to make ends meet. A cash advance provides quick and easy access to a few hundred dollars. Without access to credit cards, many folks opt for the short-term solution.
With this new program, a credit scoring model by VantageScore, people who have had past problems could see their credit score rise. Geared to be used by all three credit reporting companies (CRCs), mortgages, auto loans and credit cards will no longer be the major data being used in calculating scores. It will enhance risk alignment as a more consistent representation of an individual’s money management. Lenders and creditors of all types will be able to view a more accurate depiction of how the applicant runs their finances.
- Rent
- Utilities
- Cell Phone
These are all payments made every month and often times, they are made efficiently. In order for this new rating service to utilize these payments the lenders and companies will need to sign up with the CRCs. Consider the onslaught of good history and how it can help to counteract against negative reports which have not fallen off the credit report. If these companies are not reporting your on-time payments, it cannot help your credit. A change this big will take some time and creditors, lenders and companies will need to sign on in order to make it benefit the consumer.
This new program will also look at old debt paid in full in a more positive note. As of now, a debt which has gone to collections and then paid in full continues to look bad until it reaches its seven years and is removed from an individual’s credit history. With this new program, debt which is paid in full will have a more favorable representation in score calculations. People need to be given credit for taking care of their debt. The CRCs scores will now need to put emphasis on the paid in full report for the remainder of the seven years.
This change will help families who struggled through some economic hardship and are trying to redirect their finances. Bad financial times happen to good people and this VantageScore will be there to help boost them back into being financially functioning in a positive manner. There is no reason why someone would need to depend on cash advances when their finances have turned around. They deserve the chance to rebuild their credit through viewing more than revolving credit and installment loans.
