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What is VantageScore?

 

 

February 15, 2019 | By Opploans

What is VantageScore?

 

You might think that your FICO score is the only credit score out there—but you’d be wrong! 

There are so many scores to keep track of these days! Sure, the Super Bowl score was low enough to keep track of without any trouble, but that’s far from the only score out there. You have baseball scores, basketball scores, and, perhaps most importantly, your credit score. 

But now there’s a new score on the block. Well, if twelve-years-old is new. It’s called your VantageScore. 

So what exactly is this score, and do you have to worry about it? We spoke to the experts to find out!

 

VantageScore: Origins.

To understand the creation of the VantageScore, it helps to go back to the creation of the FICO credit score, i.e., THE credit score. 

As we’ve explained before, lenders used to determine whether someone was credit-worthy on a very personal basis. If you wanted a personal loan from the town banker, you might have to get recommendations from other trustworthy individuals in said town. 

As banks and other lenders became national enterprises, it was less practical to check in with a potential client’s neighbors to find out if they returned the tools they borrowed in a timely manner. 

That all changed in 1956 when mathematician Earl Isaac joined engineer Bill Fair to create Fair, Isaac, and Company. This new company began collecting financial information to create a standard credit scoring system that banks could reference when making their decisions. 

FICO continued to develop their credit scoring methods and in 1989, they introduced the modern FICO Score. The FICO credit score uses information gathered by the three major credit bureaus, Experian, Equifax, and TransUnion, to generate a number between 300 and 850. 

Cut to 2006, when those three credit bureaus decided they wanted to offer a score of their own to compete with the FICO score. They jointly created the VantageScore using their own distinct formula. 

“Originally it was meant to be a much more consumer-friendly score, based on the rating similar to school grades (A, B, C, D, F) rather than FICO’s 300-850,” explained Todd Christensen, education manager for Money Fit (@MoneyFitbyDRS). “Those grades were based on a 501 to 990 scale. The more recent iterations use a scale that’s much more similar to FICO’s score.” 

FICO took some issues with all of this and sued the company that administers VantageScore. After years in court, VantageScore emerged victorious and now stands as an alternative to FICO scores that lenders may consider.

 

The Vantage advantage.

Now that you know the history of the two credit scores, both alike in dignity, how do they differ today? 

“VantageScores are grouped into six categories and each category has a different influence on the credit score,” advised Katie Ross, Education and Development Manager at American Consumer Credit Counseling (@TalkCentsBlog). “VantageScore is able to get a score from one month’s history and an account that that has reported at least once in the last 24 months.” 

This is in contrast with the FICO score, which requires at least six months of credit history to generate a score. The factors that go into creating a VantageScore are also not broken down in terms of percentages like they are for your FICO score. 

Ross told us roughly how heavily the different VantageScore factors are weighted: 

“Payment history: extremely influential.

“Age and type of credit: highly influential.

“Percentage of credit limit used: highly influential.

“Total balances and debt: moderately influential.

“Recent credit behavior and inquiries: less influential.

“Available credit: less influential.”

So are VantageScores a better way to assess credit-worthiness than FICO Scores? It’s up for debate, though you likely won’t have a choice in the matter unless you’re the lender in a potential loan transaction. 

“The problem is, it is essentially for ‘educational purposes’ only, since no lenders that I know of actually use the score in their credit-based decisions,” Christensen told us. “Still, it can serve some great purposes to help consumers.” 

That may be quickly changing if VantageScore itself is to be believed. They’ve found that there has been a 300 percent increase in use by lenders and other individuals or institutions looking to review applicants’ credit scores. That’s why you might as well try to improve your VantageScore as well.

 

How to take advantage of VantageScore.

Thankfully, the steps you’ll take to improve your VantageScore are all pretty similar to the steps you’d take to improve your FICO score. 

We’ll let Ross list those steps: 

“Make payments on time.
“Pay off your credit cards in full each month–not just the minimum!
“Avoid credit card debt. Only spend what you can afford.
“Use credit for small, routine purchases and pay them off immediately.
“Limit the number of open accounts.
“Check credit reports & remove errors.“Beware of unsolicited increases to your credit limit.
“Don’t max out your cards. Maintain a good credit utilization ratio (don’t exceed 30% of available credit).”

It might be hard enough keeping track of one credit score. Thankfully, as long as you’re paying your bills on time and using your credit responsibly, both of your scores should grow.

 

Your credit score is important.

Good credit is the foundation for a positive financial outlook. With a healthy score, you can borrow more money at lower rates and qualify for the best credit cards. Not only that, but it’ll help you get that sweet new apartment you have your eye on. 

If your credit score is lousy, on the other hand, you’ll find your lending options are pretty limited. That’s how people end up relying on short-term bad credit loans and predatory no credit check loans like payday loans, title loans, and cash advances to make ends meet. 

That’s something you really want to avoid.

American Consumer Credit Counseling (ACCC) is a nonprofit organization providing free credit counseling and debt settlement advice along with low-cost services to consumers interested in eliminating debt or negotiating credit card settlement. Our certified counselors help consumers understand the benefits of bankruptcy versus debt settlement and provide resources to help reduce or settle credit card debt most effectively. We can explain how debt settlement companies work and outline the debt settlement credit score impact and provide details about alternative ways to settle debt. Through credit counseling, consumers can get answers to questions like “How does debt settlement affect my credit?” and “Is debt settlement bad?” and learn how to settle credit card debt without damaging credit ratings.

American Consumer Credit Counseling - Consolidate Debts - Better Business Bureau American Consumer Credit Counseling - Consolidate Debts - Mass Housing Approved National Industry Standards for Homeownership Education and Counseling American Consumer Credit Counseling - Consolidate Debts  - Council on Accreditation American Consumer Credit Counseling - Consolidate Debts  - NFCC Member