What is a VantageScore? – Councilor Forbes
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A VantageScore is a credit score created by the three major credit bureaus â Experian, Equfiax, and TransUnion â to help lenders, homeowners, and other financial institutions assess an applicant’s creditworthiness. The most common VantageScore version, VantageScore 3.0, has a credit score range of 300 to 850.
As with the FICO score, VantageScore’s calculations are based on factors such as payment history and credit composition, each with its own relative weight. For this reason, a consumer can improve their VantageScore by making payments on time, reducing their credit utilization rate, and limiting credit applications. We’ll show you how VantageScore works, how it compares to your FICO score, and what you can do to improve your score.
How the VantageScore works
Since its debut in 2006, there have been four models of VantageScore, but VantageScore 3.0, released in 2013, is the most common. This is because the data prioritized by the VantageScore 3.0 algorithm makes it easier for people with limited credit history to get a score. So even though VantageScore 4.0 was later released in 2017, VantageScore 3.0 is still the most popular option among lenders.
How the VantageScore is calculated
VantageScore credit scores are calculated based on data from the three major credit bureaus. The scoring algorithm also incorporates modeling techniques including trending credit data, machine learning, and National Consumer Assistance Plan (NCAP) optimization. In general, VantageScore 3.0 credit scores are calculated based on the following consumer metrics:
- Payment history. A consumer’s payment history is considered an extremely influential factor in VantageScore calculations. In fact, it’s said to be 40% of a score, nearly double the weight of the second most impactful measure. For this reason, it’s important to make consistent and on-time payments when building and maintaining a strong VantageScore.
- Age and type of credit. While not the most important factor that goes into a VantageScore, age and type of consumer credit is still considered very influential. Representing 21% of the credit score calculation, this metric covers how long a consumer has had good credit accounts and whether they have a diverse mix of revolving credit and installment loans. For this reason, it is best not to close old accounts, even if you only use them periodically.
- Percentage of credit limit used. A consumer’s credit utilization rate, or debt-to-credit ratio, is the ratio of their outstanding credit balances to their total credit limits. This metric is considered very influential and accounts for 20% of a consumer’s VantageScore calculation. Optimize this measure by keeping revolving credit account balances below 30% of your total credit limits.
- Total balances. Deemed to be moderately influential, a consumer’s total outstanding balances account for 11% of the calculation of a VantageScore. To perform well in this category, keep your credit balances paid off as much as possible.
- Recent credit behavior. Recent credit inquiries have less influence than most other metrics, but are still responsible for 5% of the VantageScore calculation. Applying for new loans or new credit cards leads to rigorous credit checks, which can lower your score. To reduce these effects, avoid applying for new credit, especially if you plan to apply for a mortgage or car loan in the near future.
- Credit available. Finally, a consumer’s available credit amount is also rated as less influential for the purposes of their VantageScore. That said, this factor still accounts for 3% of the calculation. Consider asking for credit limit increases on existing cards or getting a secured credit card if you don’t have high balances on your credit report.
How the VantageScore is used
Homeowners, lenders, and other financial institutions use the VantageScore to gauge the likelihood that an applicant will repay their loans. In fact, according to VantageScore, thousands of lenders and nine of the top 10 banks use the rating convention. VantageScore is also recognized by regulators, including the United States Securities and Exchange Commission, Federal Housing Finance Agency, and National Credit Union Administration (NCUA).
Rather than reviewing a consumer’s three credit reports, a lender can use the applicant’s VantageScore to assess their overall creditworthiness. This allows for a greater degree of automation in the lending space, which speeds up loan application processing time and speeds up approvals.
The VantageScore 1.0 and 2.0 models rated consumers on a scale of 501 to 900 with corresponding ratings from A to F. However, the most recent VantageScore 3.0 and 4.0 scores range from 300 to 850, like most scoring models. FICO. According to Experian, here are the score ranges under the VantageScore 3.0 and 4.0 models.
How to check your VantageScore
You can check your VantageScore with several lending and non-lending providers. For example, American Express uses the VantageScore 3.0 credit score to help users improve their credit score. Likewise, some credit websites provide users with VantageScore 3.0 credit scores as part of their free services. Additionally, lenders Capital One, JPMorgan Chase, OneMain Financial, and US Bank provide VantageScore 3.0 credit scores to account holders.
How to improve your VantageScore
There are a number of steps you can take to improve your credit score as a consumer. However, you can tailor these efforts to improve your particular VantageScore more effectively. To improve your VantageScore, consider these tips:
- Pay all your bills on time
- Contact your lender if you think your payment may be late
- Keep your credit utilization rate below 30%
- Build a diverse mix of credit accounts, including revolving credit accounts and installment loans
- Limit your loan and credit card requests and keep old accounts open
- Open a secure credit card to demonstrate on-time payments
- Be patient and maintain good credit habits over time
VantageScore vs. FICO
VantageScore is a model created by the three credit bureaus, while FICO scores are bureau specific. Like the FICO scores, the VantageScore 3.0 and VantageScore 4.0 credit scores range from 300 to 850. That said, good credit for FICO is at least 670, while a credit score of 700 or more is required to be. considered good according to the VantageScore model.
The calculations also vary when comparing a consumer’s VantageScore Vs. FICO score. The two scoring conventions take into account similar factors, but each model applies a different level of importance to each variable. For example, payment history represents 35% of your FICO score calculation and 40% of your VantageScore 3.0.
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