what is vantagescore

Everything you need to know about VantageScore credit scores

VantageScore, similar to your FICO score, is another way your credit score is tracked. It is often used by landlords and lenders to determine how likely you are to pay your bills on time. Understanding the different types of credit is crucial to personal finance literacy.

What is VantageScore?

VantageScore is one of the main scoring models to determine your credit score. VantageScore and FICO are the two most widely used credit scoring models. This scoring model, like many, uses the information found on your credit report to determine your score.

This consumer credit score model was developed by the three major credit bureaus – Experian, Equifax and TransUnion – in 2006. After the debut of VantageScore 3.0 in 2013, this credit scoring model became widely available. Despite the updated VantageScore 4.0 in 2017, the third edition is still the most widely used version. 

The third edition of VantageScore allowed millions of Americans to be able to have a credit score for the first time. Unlike FICO, VantageScore is often a free credit score reporting service. In addition, similarly to FICO credit scores, with VantageScore models your score is based on a scale that ranges from 300 to 850.

Like other credit scoring models, your score may vary. This is due to the fact that not all financial institutions report your credit files to all three credit bureaus.  There are four different editions of this model, so some providers may be calculating your score based on an older model. 

How important is my VantageScore?

Like all credit scoring models, this score type is very important in determining your ability to obtain a loan, such an auto loan, personal loan or a credit card. 

Currently, the only credit industry that does not use this scoring model is the mortgage market, meaning that your VantageScore is very important in determining your risk to a creditor. It is designed to predict your ability to repay your debts based on your credit history.

what is vantagescore

How is VantageScore calculated?

This scoring model does not rely on percentages to weight the factors it considers. Instead, it describes the factors in terms of how influential they are to the calculation. 

Many factors are determined when calculating your score. These factors include payment history, length of time you’ve held each account, types of credit, recent credit inquiries and credit usage. In addition, the fourth edition also looks at your personal behavior patterns, which can positively impact scores for people actively paying down their debt. 

In addition, VantageScore, unlike FICO, can score those who are new to credit and have little to no credit history. These two companies score credit in a very similar manner, the main difference lies in the length of your credit history. VantageScore only needs one month of history, while FICO requires at least 6 months of credit history.

These six factors are used to determine your score:

Payment history (extremely influential): Your payment history will have the biggest impact on your score. In order to score well in this category, you must have a strong repayment history, with consistent on-time payments. Any missed or late payments will have a strong negative impact on your score. As a tip, student loans often have a long repayment period, meaning that if you consistently pay them off on time, it will help your overall payment history and credit history length.

Age and credit account type (highly influential): Another important factor is the length of time that you have held your different credit accounts. Long-term, well-established lines of credit, as well as a mix of different types of credit are ideal.

Credit utilization (highly influential): Credit utilization is the percentage of your credit that you are currently using. A percentage of under 30% is what experts recommend.

Total balances and debt (moderately influential): Your credit balance is the amount you currently owe on all of your lines of credit. You want to keep a low balance on your accounts. Low balances show lenders that you are making payments on time. 

Recent credit behaviors and inquiries (less influential): VantageScore also looks into your recent credit inquiries and new lines of credit that have recently been opened. This includes credit card applications, recent personal loan applications and more. Lenders use this as an indicator for your future financial performance.

Available credit (less influential): Although your available credit is not super important to your score, you should only be using the credit that you need, nothing more, nothing less. 

Score ranges: what is a “good” VantageScore?

All scores range somewhere between 300 and 850. Older models use a range of scores from 501 to 990, but the most widely available scores will fall between 300 and 850. The closer your score is to 850, the better the credit score, and the more likely you are to to ge a new line of credit. According to Experian, most Americans have a Fair VantageScore or better, meaning, their score is 650 or above. A “good” credit score for most credit card issuers is 700 or higher. 

Currently, a good score is anywhere between 700 and 749, and an excellent score is anything higher than 750. A bad credit score, or poor credit score,  is anything that falls under 649, with a very bad score falling under 550. 

VantageScore editions: what do they mean?

VantageScore 3.0 is still the most widely used edition of the scoring model, even through the onset of the fourth edition. The latest edition, VantageScore 4.0 aims to give lenders a better picture of a person’s credit history.

Scores are updates to be more accurate and more consistent. The major difference between the third and fourth editions is that the fourth uses trended credit data to determine your score. It looks deeper into your credit history than other models.

The fourth edition also gives less value to medical account collections. Often, medical account collection stems from delayed payments by issuers rather than a customer’s failure to pay their medical bills on time. The newer model only counts unpaid medical collections that are over six months late.

In a nutshell

Your credit score is an extremely important factor in determining your likelihood of paying back a debt on time. VantageScore is just one of the many credit scores that can affect your ability to obtain a loan. By understanding this model, you can make the best financial decisions to better your score and strive for better financial stability and better financial literacy.

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