If you know anything about credit, then you’ve probably heard of the credit scoring company called FICO®. But FICO® isn’t the only credit scoring company out there. Here’s what you need to know about the newer credit scoring company, VantageScore®.
What Is VantageScore®?
For many years, FICO® has been the name in credit scores — but it’s no longer the only name in credit scores. A few years ago, a new credit scoring company called VantageScore® was created, and it’s been growing in popularity ever since.
VantageScore Solutions, LLC was founded in 2006 as a joint effort by the three major credit reporting agencies: Equifax, Experian, and TransUnion. Although the three bureaus created the new score, the company is independently run. So, why did they work together to create a new score?
According to VantageScore®, the goal was to create a credit scoring “model that could more reliably and predictively score more people.” The company lists goals like improving assessment of risk, creating a model that could be applied to all three credit reporting agencies, and expanding “the universe of people who can be scored.”
VantageScore® still has a ways to go to become as popular as FICO®. But the company is working to move its formula forward, having just recently released the fourth model of its score.
VantageScore® and Your Life
FICO® may still be the leading credit scoring company based on market share, but that doesn’t mean you don’t need to know anything about VantageScore®.
According to VantageScore®, from 2015 through 2016, “more than 8 billion VantageScore credit scores were used.” (That’s compared to FICO®’s 100 billion scores having been sold to date, starting from its founding in 1956.) The company also says that its scores were used “by over 2,400 lenders and other industry participants — including 20 of the top 25 financial institutions.”
Besides the fact that some lenders are using VantageScore® instead of or in addition to FICO®, there’s a chance that you’ve seen one of your VantageScore® credit scores more often than one of your FICO® credit scores. That’s because the credit scores you see are not always the same as the ones your lenders see. And many services that offer to show you your credit scores for free seem to be using VantageScore®.
If you look through these 15 places you can get a free credit score, for example, you’ll see that 14 out of the 15 services show your VantageScore® 3.0, while only one shows a FICO® credit score — FICO® Score 8. (Full Disclosure: In fact, Upturn Credit shows users a VantageScore® 3.0 for free also.)
Regardless of what credit score you check, it’s important to know which range the score you’re looking at falls into. Since consumers have more than one credit score, it can be a fruitless effort to fixate too much on the score itself. Instead, knowing the range gives you a good idea of the state of your credit.
Here’s a breakdown of the VantageScore® credit score ranges:
|VantageScore® 3.0 and VantageScore® 4.0||VantageScore® Credit Tier|
How VantageScore® Credit Scores Are Calculated
The real question you might be considering above all else is how your credit scores are calculated. Here’s a breakdown of the factors that determine VantageScore® credit scores:
|VantageScore® Credit Score Factor||Level of Influence|
|Payment history||Extremely Influential|
|Type of credit and duration of credit||Highly Influential|
|Credit utilization ratio||Highly Influential|
|Total debt||Moderately Influential|
|New credit inquiries||Less Influential|
|How much available credit you have||Less Influential|
Right off the bat, the way you handle your credit is the most influential factor of your VantageScore®. That makes things simple. By paying the full amount due on your credit bills each month on time, you’re taking a big step towards building positive credit. If you do carry a balance on your credit cards from month to month, it’s important to keep that balance as low as possible.
The two next most influential factors focus on what kind of credit you’ve carried and for how long (the older your accounts, the better) and how much revolving debt you have (credit utilization ratio). Keeping old accounts open can help you with the first factor. Keeping your credit card balances as low as possible can help you on the second. Many experts advise consumers to use no more than 30 percent of their available credit at any given time.
Read here to learn more about credit utilization and other things you should know about how credit scores are calculated.
Finally, the last few factors focus on your total amount of debt (less is always better), new credit inquiries (it’s best not to apply for too many types of credit at once), and your available credit.
All in all, the VantageScore® credit scores, like most credit scores, were designed to predict how you’ll use new credit based on the way you use the credit you already have. If you focus on responsible credit behaviors such as paying your bills on time, not racking up high revolving debt balances, and only applying for credit when you need it, then you can get on track to building a good credit score (VantageScore® or otherwise).
Take charge of your credit: Here’s everything you need to know about credit scores and credit reports.