When you check your credit score on websites, through credit card companies or with lenders, one of two companies will be providing those scores — FICO or VantageScore.
VantageScore is the newer of the two scoring models, and its usage has grown in the financial industry, including by credit card companies and websites that offer your credit score for free. Here is a look at what VantageScore is and why you might encounter it as you keep tabs on your credit.
What Is VantageScore?
The VantageScore model was developed in 2006 by the three national credit reporting companies — Equifax, Experian and TransUnion — as an alternative to the more established FICO scores. FICO scores, which were created by the Fair Isaac Corp., started in 1989.
The VantageScore system was designed to provide a consistent credit scoring model that could be used by all three credit bureaus. It also aimed to expand the number of people who receive credit scores, including college students and recent immigrants, and others who might not have used credit or use it sparingly, says Jeff Richardson, senior vice president and group head of marketing and communications for VantageScore Solutions.
Credit expert John Ulzheimer, who formerly worked for Equifax and FICO and has written for VantageScore’s newsletter, says it’s important to have a scoring system that is competitive with FICO.
“The financial services environment operated with only one choice in tri-bureau credit scoring systems for decades,” Ulzheimer says. “That meant an overwhelming majority of decisions about our applications were influenced by one scoring company — FICO. Giving lenders a second, equally effective option allows them to test the efficacy of scoring models and upgrade, if warranted, and price credit products more accurately.”
In addition, Ulzheimer credits VantageScore for creating the free credit score market.
“Before FICO started allowing credit card issuers to give away their scores to their customers, VantageScore was the only noneducational credit score being given to consumers on a large-scale basis,” Ulzheimer says.
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Who Uses VantageScore?
A variety of financial and nonfinancial institutions use VantageScores. About 12.3 billion VantageScores were used between July 2018 and June 2019 by more than 2,500 financial institutions, according to a VantageScore Solutions market study released in 2019.
Financial institutions often use the score for issuing lending products such as credit cards, installment loans and auto loans. The 2019 report showed nine of the 10 largest banks use the scores in one or more lines of business. Nonfinancial institutions such as consumer websites, utility companies and government entities use VantageScores for credit screening checks before a rental or purchase or to share directly with consumers. Also, consumer websites provide credit scores that help people track their credit status.
Organizations that use VantageScores for credit include:
— Credit card issuers.
— Personal and installment loan companies.
— Auto lenders.
— Tenant screening, telecommunications and utility companies.
— Consumer websites.
— Government entities.
VantageScore and FICO Score Differences
There are several versions of VantageScore and FICO, and each has a different scoring model. For example, a lender will likely use an older version of FICO for a mortgage application, while a consumer site might rely on the latest version of VantageScore.
Generally, VantageScore uses data such as rent, utility and telecom billing information; public records; and older credit file information to develop a profile of consumers. The most-used FICO version is FICO 8, which does not consider rent payments. FICO 9 does, and it’s possible lenders could start using it in years to come. Also, FICO introduced new versions in 2020 such as UltraFICO Score, FICO Score 10 and FICO Score 10T, which take into account additional consumer data.
Your credit history will be recognized more quickly with VantageScore because it will look at the first month of reported credit activity, Richardson says. FICO requires that an account be open for at least six months before issuing a score.
However, FICO officials are skeptical of VantageScore’s ability to provide an accurate credit score after such a short period.
“I would suggest the one-month history, from our perspective, has proven analytically insufficient to build a quality score,” says Joanne Gaskin, senior director of scores and analytics at FICO.
What Influences VantageScore
The basic scoring systems of VantageScore and FICO are fairly consistent, and the scores are primarily based on the credit history contained in consumers’ credit reports.
VantageScore breaks down the various influences on a consumer score this way.
— Extremely influential: Payment history. In fact, 90% of people with a “prime” VantageScores — between 661 and 780 — pay all of their debts on time.
— Highly influential: Age and type of credit, which means that using a variety of accounts over time, such as credit cards and auto loans, can improve your score. Percentage of credit used is also highly influential. VantageScore urges consumers to keep their revolving balances under 30 percent of the total credit line.
— Moderately influential: Total balances and debt, which rewards consumers who keep debt levels low.
— Less influential: Recent credit behavior, which means consumers who open many credit accounts in a short period of time can be penalized.
— Least influential: Amount of credit available, which rewards people who use only the amount of credit they need.
Although the factors that contribute to the FICO score are similar to VantageScore and both systems’ scores range from 300 to 850, “we weight different behaviors differently,” Richardson says. “These are two very different models. It’s the same data, but we interpret it in different ways.”
How VantageScore 4.0 Differs From VantageScore 3.0
VantageScore 4.0 was released in 2017. One of the main differences between VantageScore 4.0 and 3.0 (released in 2013) is that the more recent version relies on trended credit data that cover more than a month of consumer activity.
For example, if a consumer has high credit card balances around the holidays and pays them off every year, it’s important to not let the credit score be unduly influenced by that one month’s activity, Richardson says. Instead, the score looks at a longer time frame to see how the behavior is distinctive from someone who has high credit card balances all year. Also, if consumers pay double the amount owed on their monthly auto loan payment, for example, they can be rewarded for that behavior.
The data let VantageScore be more predictive, allowing people new to credit to have an opportunity to get a higher score than they would have otherwise, Richardson says.
The 4.0 version also uses machine learning technology to better predict behavior of people with limited credit history and removes potentially negative items from consideration in a consumer’s credit score, such as civil judgments and some medical collection information.
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How to Use VantageScore
Knowing your VantageScore can help you understand what lenders consider when making credit decisions. VantageScores are available on free websites and through many lenders. There can be a disconnect between the scores you can obtain for free and the ones your lender is using, however. For example, mortgage lenders are required to use a version of the FICO score almost exclusively.
Regardless of the score you’re relying on, the factors are somewhat similar. That’s why the score you’ll find on a free website or through a credit card company shouldn’t be dramatically different from one used for an auto loan or mortgage.
“Make sure you make your payments on time, keep utilization relatively low, do not go out shopping for credit you don’t need, and over time your score is going to be pretty high for all these models,” Richardson says.
Understanding Your Credit Score
VantageScore offers a few resources to help consumers understand what influences its credit score:
— VantageScore.com presents stories, videos and infographics to help consumers understand how they are scored and how to improve their scores.
— ReasonCode.org helps consumers understand why their credit score isn’t as high as they might like. The website allows you to insert codes found in disclosure statements and get more information on what might be weighing down scores.
— CreditScoreQuiz.org is a partnership between VantageScore and the Consumer Federation of America that helps consumers learn more about credit scoring. It’s offered in English and Spanish.
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