What is Your VantageScore? And Does It Matter?

One of the things that becomes quickly apparent as you dive into the world of credit scoring is that there is no standard model.

While the FICO score is the most commonly used credit scoring model amongst lenders, there are other models as well, and even variations on the FICO score (how#8217;s that for confusing?).

For the most part, the sameВ information in your credit report is used to compile the different scores, but the weights given to different factors, as well as other proprietary information, are different.

One of the credit scores that you might run across as you look into your credit situation is the VantageScore.

This credit scoring model was introduced in 2006, and is a product offered by the three major credit bureaus. В Equifax, Experian, and TransUnion created the VantageScore to compete with the FICO score.

You can see your VantageScore for free when you visit the Experian and TransUnion web sites. В You can also see it free on sites like Quizzle and Credit Karma.

The Vantage Score is based on more factors than those release by the FICO score.

The factors that go into the VantageScore include:

Additionally, VantageScore has a slightly different scale that offered by FICO.

The VanatageScore model runs from 501 to 990. В It#8217;s fairly straightforward, with credit being termed either A, B, C, D, or F. В Just like in school, an A is the top grade. В Each grade advances by hundreds. В So, anything from a 900 to a 990 is A credit, and if you have 501 to 599, you have F credit.

The idea, according to VantageScore, is to drill deeper into the subprime borrowers.

It#8217;s a little bit harder to achieve excellent credit under the VantageScore than it is under the FICO scoring model. В However, since each bureau#8217;s VantageScore is based on slightly different data (whatever is available in the specific agency#8217;s report on you), VantageScores vary #8212; as do FICO scores.

While there are some lenders that make use of the VantageScore, it is still less common to the FICO score in use. The VantageScore, although meant to compete with the FICO score, hasn#8217;t made the kind of inroads that some might like.

Tracking your VantageScore for free, though, can have its benefits.

You can use it as a guide to see how your situation might be improving #8212; or deteriorating. В Whether your score is rising or falling can give you an idea of overall trends in your finances, and help you improve the situation if you need to.

For example, if you are considering buying a new car you certainly want to know your credit score if you intend to get a car loan. В A better score means a lower interest rate. В By checking your VantageScore you can see how strong your score is. В If it#8217;s not quite where you need it to be to get the best rates then you can get working on improving your credit score before you look for that car.

It#8217;s a great benefit to your finances to consider some of the other scoring models out there, if only to see a snapshot of your current situation.

In the end, more credit scoring models are likely to be developed.

There has been a demand for scores that reflect consumer behavior beyond just credit. В Many people prefer to use cash rather than credit but current scores don#8217;t reflect well on those people, even if they are responsibleВ withВ their money.

Additionally, even FICO offers variations of its scoring algorithm that focus on specific types of debt, such as weighting factors related to mortgages for home loan applications, and other changes.

The best you can do is attempt to be responsible, and keep your credit in overall good shape.

Credit Scores vs. FICO VantageScores: The Differences Explained

Who uses vantagescoreIn the not-so-distant past, how lenders determined your creditworthiness was shrouded in mystery. Even with the majority of the veil now pulled aside, it's probably reasonable to assume that a fair number of consumers receive no formal or informal education on the finer points of personal finance. Money management is generally something you learn as you grow through life. In your teen years, you establish bank accounts. Then you buy a car. Then you buy a home. Along that path, you learn the general mechanics of credit and how it works. But do you know the difference between a credit score, a FICO score and a VantageScore and how lenders use those numbers?

A credit score is a number arrived at in a variety of methodologies and formulas that allows lenders to assess you as a credit risk. Even today there is no particular recognized standard in credit scoring. A FICO score is a credit score. A VantageScore is a credit score. Lenders might also have their own method for determining credit scores.

Why is your credit score so important? Your credit score is with you for life. The higher your credit score, the lower you are as a credit risk. This affects whether you can borrow money, how much you can borrow, the terms of a loan and how much it will cost you in finance charges.

Fair Isaac Corporation (FICO) was founded in 1956. They created the FICO score as a means to evaluate creditworthiness. Prior to 1956 and until the 1980s, lenders used their personal judgment in determining who was able to borrow money. FICO developed the first credit scoring system generated on a score between 300 and 850 based on credit history and sold the credit scores to lenders. It proved to be a lucrative venture.

In the 1980s, FICO built custom software to automate the process. At that point, the three main credit reporting agencies (Equifax, TransUnion and Experian) adopted the FICO score as a loose standard. Due most likely to its longevity, the FICO score still holds its place as the dominant credit scoring agency.

The Big 3 credit reporting agencies, Equifax, TransUnion and Experian, eventually got together and decided that it was time that FICO share the wealth. With the market now open to making credit scores available to consumers as well as lenders, the credit bureaus wanted their slice of the pie. They began marketing VantageScore in 2006. VantageScore is also based on a range of numbers, although those numbers differ somewhat from FICO in that the range is from 502 to 999.

FICO filed antitrust, false advertising and breach of contract claims against the Big 3 in 2006 to prevent VantageScore from the use of the range of numbers that overlapped with the FICO scoring system. After a four-year court battle, a jury rendered a verdict that a credit score range could not be trademarked. In July 2010, a U.S. District Court Judge dismissed all of FICO's legal claims, thereby ending the litigation.

The Aftermath for Consumer Lending

It might appear that the outcome of the litigation between FICO and the credit bureaus only complicated matters. However, that is not the case. Request your FICO score and your VantageScore. If you need to borrow money, your best bet is to simply research your lender options. If your FICO score is stronger, look for a lender that uses FICO credit scoring. If your VantageScore is stronger, seek out a lender that uses the VantageScore credit score range. And don't forget to take into account that some lenders use their own credit score. The effort you expend in collecting the information on your credit scores and researching lenders will pay off in better loan terms and lower interest rates for you.

What is a Credit Score: Classic FICO vs VantageScore 3.0

To help you learn more about your personal credit rating, we#39;ve broken it down for you. Simply put, your credit score is a three-digit expression of your creditworthiness. However, it is way more than that: your credit score is an important part of your financial stability. Your credit score is one of the important deciding factors utilized by financial institutions and lenders when deciding your interest rate when you get a home; car, loan or credit card.

Who uses vantagescore

Who are the Credit Score Players?

Over the years, the FICO score has been used most often in determining creditworthiness. VantageScore is a new player and follows a slightly different formula to achieve the same end, namely determining your risk level.

Credit scores are commonly referred to as a FICO score. Developed in 1989 by Fair Isaac Corporation, the FICO score is a mathematical formula that takes into account several factors in a person#39;s credit history to determine their risk level. It#39;s currently the most widely used model by banks and other lenders with an estimated 90 percent market share.

Payment history - 35 percent. Paying on time, paying late or not paying at all are all factors.

Account balances - 30 percent.

The age of each account - 15 percent.

Types of accounts - 10 percent. The different types are revolving, installment, mortgage and alternative financial services such as payday loans.

Recent inquiries - 10 percent. Repeated inquiries for new lines of credit over a short period can affect your score, though rate shopping for mortgages, student loans and car loans are shielded.

Though the score was developed by Fair Isaac Corporation, they do not calculate it. That#39;s done by each of the credit bureaus, TransUnion, Equifax and Experian, based on information in your credit report. Because each bureau collects different information, the credit scores will differ between the three. For example, the retail card you just opened might be reported to TransUnion and factored into their score, but not the other two.

The most complete picture of your creditworthiness is therefore achieved by obtaining a score from the 3 major credit bureaus: Equifax, Experian and TransUnion.

Who uses vantagescore

Created in 2006, the VantageScore was designed as a joint effort by the 3 credit bureaus. The breakdown of what goes into a VantageScore is slightly different than that of a FICO score. The factors and their weight are:

Payment history - extremely influential.

Account balances - highly influential.

The age of each account - highly influential.

Total outstanding debt - moderately influential.

Recent inquires and new credit - less influential.

Total available credit - less influential.

VantageScore 3.0, the most recent version of the formula, aims to offer a more accurate picture of an individual#39;s credit history and thus a better prediction of their creditworthiness. VantageScore 3.0 also offers the same 300 to 850 score range as FICO. However, less than 10 percent of lenders depend on VantageScore to determine creditworthiness.

As a competing service, there are a few differences between VantageScore 3.0 and FICO.

Length of History Needed for a Score

FICO requires at least a six-month credit history and reporting from at least one account in that time period to calculate a score. VantageScore 3.0 only requires one month and reporting from at least one account in the last two years, which is helpful for consumers just starting off as well as those who#39;ve been inactive for an extended period.

VantageScore 3.0 does not penalize consumers for paid or otherwise settled collection accounts that appear on their credit report. Because they remain on your report for seven years, collection accounts are factored into a FICO score, though the impact can be reduced by paying off the debt.

For collection accounts with an outstanding balance below $100, your FICO score completely ignores it while VantageScore 3.0 greatly reduces the effect of balances below $250 on your score, but it is still a factor.

Type and Length of Account

Another big difference between FICO and VantageScore 3.0 is the way different account types affect your score. VantageScore 3.0 is advertised as a more accurate scoring system, therefore different account types are given different weight. A first mortgage, for example, has a different impact than a home equity loan. A late payment on a mortgage also has a greater impact than a late payment on a retail store account. In comparison, a FICO score has no differentiation.

VantageScore 3.0 is available for free through some free credit report websites while consumers must pay a fee to obtain their FICO score.

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VantageScore’s Top Five Most Popular Questions at NAFCU’s Annual Conference

Who uses vantagescoreWritten by Jeff Richardson

Vice President, Communications and Public Relations

NAFCU members aren’t exactly known for being shy or reserved. So you can imagine how many questions I fielded about credit scoring, both during my breakout session presentation and while chatting with conference participants in VantageScore’s networking lounge during NAFCU’s Annual Conference and Solutions Expo in Montréal, Canada last month.

Because some of the questions during the conference were particularly popular, I thought it might be helpful to compile and share the five most common questions that came my way. Here are those questions and related answers, presented in no particular order.

1. How does the VantageScore® credit scoring model help credit unions grow?

One of the key differentiators of the VantageScore® model is its ability to score more of your credit union members. Your lending portfolio will benefit from capturing the widest possible base of qualified and relevant prospects within your target demographics and risk strategy, without having to relax credit standards to attract more members.

Traditional credit scoring models limit your lending universe to a smaller percentage of qualified U.S. adults than the lending population available with the VantageScore® 3.0 model. The VantageScore® 3.0 model gives lenders, like your credit union, access to 30-35 million consumers who are invisible to traditional credit scoring models. That#8217;s a group larger than the population of Texas!

  • Who uses vantagescoreThe model expands the lending universe by using broader and deeper credit file data and more advanced modeling techniques that capture unique consumer behaviors more accurately.
  • Nearly 25% of these newly scoreable consumers are actually prime or near-prime credit quality—excellent candidates for mainstream lending products.

A terrific infographic that provides a more detailed explanation is available on our website.

2. Why does your member’s credit score go down after he/she opens a new credit account?

One of the characteristics that contribute to the calculation of a VantageScore® credit score is opening a new credit card account. This is far less influential than the main factors that affect a score, such as missing payments or maxing out a credit card account, but it does have an impact.

A small drop in a person’s credit score is possible after opening a new credit card because that new account represents new risk of potential overextension, with no available history to demonstrate that the consumer can effectively manage the new account. Applying for a new account also likely involved a credit inquiry with one or more of the three credit reporting companies (CRCs: Equifax, Experian, or TransUnion). That inquiry is also likely to cause a slight drop in an individual’s score.

As long as your member doesn’t max out the credit card or miss any payments on the new account (or any others), the member’s score should return to its previous level in about three months.

3. Who uses the VantageScore® model?

Nearly one billion VantageScore ® credit scores were used in 2014, by over 2,000 lenders and other industry participants, including 6 of the 10 largest banks. In that same vein, credit unions should know that the National Credit Union Administration (NCUA) recognizes the VantageScore® model, and there are no regulatory hurdles for credit unions that want to take advantage of the model.

4. How can our credit union switch to VantageScore®?

The VantageScore ® model is marketed and sold exclusively through licensing arrangements with the three major CRCs (Equifax, Experian and TransUnion). Your credit union likely already has a relationship with one or more of these companies and can obtain more information about VantageScore® through your CRC representative. Get contact information for the three CRCs on our website.

5. Did I win the VantageScore® Drone Giveaway?

Who uses vantagescoreVantageScore’s giveaway of the DJI Phantom 2 Vision personal drone generated almost as much attention as our presentation session. Inspired by our company tagline, “A Higher Level of Confidence,” the high-flying prize was a constant object of curiosity – and longing by conference attendees.

Thanks to all who submitted a business card or had their badge scanned for a chance to win. You’re all winners in our book, but only one lucky NAFCU Annual Conference attendee could take home the drone. Congrats to credit union attendee Michael O. who is the new owner of a DJI Phantom 2 VISION!

It was a real pleasure meeting you all at the conference. And, if you want to connect with VantageScore® further, sign up for our e-newsletter The Score, and follow us on Twitter: @VantageScore®. In the meantime: À l#8217;année prochaine (Until next year)!

Download your copy of the free white paperMaximizing the Credit Universe” to get valuable insights into ways to revise current strategies to manage risk, while expanding the ‘credit accessible universe.’