What is VantageScore?
The three major credit bureaus (Equifax, Experian, and TransUnion) introduced VantageScore in 2006 as an alternative to the FICO score, which the Fair Isaac Corporation created in 1989. Both are widely used today.
How VantageScore Works
VantageScore 4 is the most recent iteration of VantageScore. Six factors are used in its calculation, each with a different weighting:
- History of payments (41%).
- Credit mix and age (20%)
- Usage of credit (20%)
- 0% new credit
- Balance of credit (6%)
- Credit availability (2%)
With eighty-one percent of a person’s VantageScore coming from these three characteristics, they are the most significant. The payment history shows how often the debtor has made on-time credit bill payments. The terms “age” and “mix of credit” relate to how long someone has had credit accounts and if they have used various credit forms, such as credit cards and vehicle loans (having older charges and several account types is a positive). Credit usage is the amount of an individual’s available credit that they are presently using; a lower percentage indicates better credit.
The three credit bureaus—private enterprises that produce and market credit reports on individuals—provide VantageScore with the necessary information. Credit reports provide details on an individual’s past and present credit accounts (including credit cards, mortgages, and auto loans), usually spanning up to seven years. They don’t include data on the person’s assets or income or private information like race, ethnicity, or marital status.
Credit bureaus get their data from people’s creditors and sometimes from court documents. A person’s credit report might vary from bureau to agency, as not all creditors provide information to all three agencies (and some don’t offer it to any of them). VantageScore is “the first and only tri-bureau credit scoring model.” One of its benefits is its access to information from all three agencies.
VantageScore emphasizes the use of trended data and “machine learning” as well. “Trended credit data,” it states, “reflects changes in credit behaviors over time, in contrast to the static, individual credit history records that have long been available in consumer credit files and used in generic scoring models.” It claims that these methods can provide credit scores to more individuals, particularly those whose credit histories are too short for existing credit scoring models—a group known as “people with thin files.”
A Good VantageScore: What Is It?
VantageScores presently range from 300 to 850, much like FICO ratings. (A scale of 501 to 990 was utilized in previous VantageScores.)
An individual is seen as more creditworthy the higher their score.
The credit agency Experian states that VantageScores are broken down as follows:
- Outstanding: 750–850
- Excellent: 700–749.
- Poor: 649 to 550
- Abnormally low: 300 to 549
Disparities VantageScores and FICO Scores in Relationship
According to FICO, 90% of the best lenders still utilize FICO scores, making them the most popular credit score.
VantageScores are, however, gaining traction. According to Oliver Wyman, a consulting company, VantageScore use increased by 18% between 2019 and 2022.
FICO bases its ratings on five elements instead of six and gives them slightly different weightings than VantageScore. According to FICO, these are the weights that are used.
- Past-due payments: 35%
- 30% of total amounts owing (including credit usage)
- Credit history length: 15%
- A mix of credit: 10%
- 10% new credit
There are several significant distinctions between VantageScore and FICO. As previously indicated, VantageScores includes data from the three credit bureaus. The information in the files of a specific credit bureau determines the FICO scores that agency provides. Additionally, the three bureaus provide many FICO score variants, some customized to particular categories of lenders like credit card issuers or mortgage businesses. These variants are based on various FICO models. Equifax, TransUnion, and Experian provide 13 distinct FICO ratings, while Equifax offers 14.
VantageScores may be computed for individuals with shorter credit histories or inactive files. Still, FICO scores need at least one update to the individual’s files during the last six months or at least six months of credit history. VantageScore claims that this enables it “to score approximately 37 million more consumers who are typically not scored by conventional models without relaxing standards.”
The company says 94% of American adults can be scored using VantageScore’s algorithm.
How Can Your Credit Score Be Obtained?
Many banks and credit card firms will provide your credit score at no cost. Additionally, some websites provide free credit ratings. The free credit scores that these websites frequently offer are VantageScores.
How Are Your Credit Reports Acquired?
You are legally entitled to a free copy of your credit report from each of the three leading credit agencies at least once every 12 months. The AnnualCreditReport.com website is the official portal for all three agencies. Since your credit score is not included in your credit report, you must acquire it independently.
How can your credit score be raised?
The most significant methods to raise and maintain your credit score, regardless of your VantageScore or FICO score, are to pay your bills on time each month and keep a credit usage ratio as low as possible. Generally speaking, it is less than 30%.
According to The Bottom Line VantageScore, you likely have a credit score or soon will, which claims that its credit scoring mechanism enables it to issue scores to around 94% of individuals. VantageScores and FICO scores differ in some aspects; nonetheless, the credit behaviors that determine a positive (or negative) score are comparable and should be considered if you intend to apply for a loan or other credit.
Conclusion
- The VantageScore credit scoring methodology gives customers a score between 300 and 850 based on their credit history. It serves as a substitute for the FICO scores that are more often utilized.
- The three leading credit scoring companies, Equifax, Experian, and TransUnion, created VantageScore. They still use FICO scores as well.
- VantageScore claims that to provide a more precise and predicted image of a customer’s creditworthiness, it employs “machine learning” methods.
