What Is A VantageScore And How To Get It

A VantageScore is a three-digit credit score that lenders use to predict how likely you are to repay the money you borrow. It was created by the three credit bureaus (TransUnion, Experian, and Equifax) as an alternative to the commonly used Fair Isaac Corporation (FICO) score.

The higher your VantageScore, the more likely you are to be approved for a loan. Initially, the VantageScore scale ranged from 501 to 999. However, it recently switched to a scale of 300 to 850, which FICO also uses.

Types Of VantageScores

Since the three Credit Bureaus first revealed the VantageScore model in 2006, several updates have been made. The most recent model is the VantageScore 4.0. However, older models are still in use.

The following are the four VantageScore models being used today and the differences between them:

VantageScore 1.0

VantageScore 1.0 is the first version of VantageScore that was launched in 2006. Its scale ranges from 501 to 999. This model provides consistent scores for all three credit bureaus.

VantageScore 2.0

The second version was released in 2010 in response to the Great Recession. At that point, there were significant shifts in the credit markets that needed to be addressed. The new model reflected both non-recession and recession credit patterns. The model used nearly twice as many credit files to build a dataset that would improve predictability.

VantageScore 3.0

The third model was released in 2013 and introduced new analytics and more granular data from consumer credit files. This model could also use rent, telecom, and utility data to calculate scores if that data was present in consumer files. The model also took into account consumer behavior that occurred after the economic crisis in 2008.

VantageScore 4.0

The latest model, VantageScore 4.0, is the only model used by all three credit bureaus to incorporate trended credit data. The model reflects credit behaviors over time instead of the snapshot-in-time approach other models use. The model also leverages machine learning to develop scores for consumers with limited credit histories.

Finally, in addition to a refreshed dataset, VantageScore 4.0 is the most predictive model. It was designed with the National Consumer Assistance Plan in mind, meaning that it relies less on certain types of data, like medical collections information and civil judgments.

How Does It Work?

Several factors contribute to the overall score of the VantageScore. These factors are used to assess the financial position of the borrower. The final VantageScore number gives lenders a good idea of the risk a borrower presents.

For example, if your VantageScore hovers around the 300-400 mark, it means your credit is very poor. It will therefore be challenging to secure a loan because lenders will assume that you are not financially responsible and may not be able to pay the loan back on time and in full – or that you are unable to do so because of existing debts.

On the other hand, if your VantageScore is good, it means you’ll have a much easier time obtaining a loan since your credit score indicates to lenders there is a very small risk of defaulting.

It’s also important to note that your VantageScore can affect the terms of the loan. Even if you qualify for a loan, you may still be considered a high risk to lenders. Lenders will offset this risk with loan terms that are less favorable to you, such as a higher interest rate.

The Factors Used To Calculate Your VantageScore

VantageScore uses five main categories to calculate your score: payment history, utilization (how much of your available credit you are using), debt-to-income ratio, length of credit history, and new credit accounts.

Keep in mind that the factors contributing to the VantageScore aren’t judged equally. The following is a breakdown of how influential the different factors are to your final VantageScore:

  • Extremely influential: Your personal payment history is the most influential factor to your VantageScore credit.
    It reflects roughly 40% of the overall score. Your payment history refers to your record of paying bills on time and in full (such as for credit card payments and loans) and whether you defaulted on any debts. No lender will want to risk giving out a loan to someone who might not pay them back.
  • Highly influential: The type and duration of credit and the percentage of your credit limit being used are highly influential factors.
    For example, if the only kind of credit you have is from credit cards that are all maxed out and are only a few months old, it can hurt your score. It indicates that you are taking on too much debt and that you are unable to pay it back.
    However, if you have a few credit cards with low balances that you’ve held for five years along with a personal loan that you are close to paying off, it shows that you know how to use credit responsibly. Together, these factors contribute to 41% of your score.
  • Moderately influential: Although debt matters, lenders are more concerned about your ability to make payments. If you have significant debt but have never made a late payment in your life, it may not affect your score as much. This is why debt history only contributes to 11% of your VantageScore.
  • Less influential: Some factors have less influence on your credit score. Factors such as your available credit and recent credit inquiries only affect your score by 3%.

The Range Of VantageScore Credits

The scale for VantageScore ranges from 300 to 850. The following is the VantageScore scale that lenders use to determine your creditworthiness:

  • Very poor: 300 to 499
  • Poor: 500 to 600
  • Fair: 601 to 660
  • Good: 661 to 780
  • Excellent: 781 to 850

It’s important to remember that if you want to apply for a large loan, such as a mortgage or a car loan, you’ll need a good or excellent VantageScore to qualify for the best loan rates.

If your credit is poor or very poor, you’ll have trouble qualifying at all. You may be eligible for certain types of loans, but they’ll either have to be government-backed loans or you’ll get stuck with unfavorable terms.

How To Get Your VantageScore

You can get your VantageScore for free from several sources, including Credit Karma, Experian, and TransUnion. You won’t have to pay to get your score, and you can access it as often as you like. If you have certain credit cards, such as Chase or Capital One, they can provide you with your VantageScore for free as well.

However, to get your VantageScore for free, you may need to sign up for a credit monitoring service with the company providing the score.

Credit Score And Credit Report

A credit report is a detailed history of how you’ve used credit in the past. It includes information like where you opened your accounts, how much credit you have available, and whether or not you’ve paid your bills on time.

Meanwhile, a credit score is simply a three-digit number that represents your overall credit risk. It’s based on the information in your credit report, but it gives lenders an easy way to identify your creditworthiness at a glance.

Both are important. You could have trouble qualifying for loans or credit cards without a good credit score or a healthy credit report. For example, if your score just meets a qualification limit, the lender will go through your credit report to determine why your score is what it is. If they see that you’re constantly late on payments, they may bump up the interest rate on your loan.

If they see that you’ve been taking on more and more debt within the last few months and are beginning to struggle with making payments on time, they may decide that the risk of lending to you is too great.

Keep Monitoring To Optimize Your Credit

Your credit score and credit report are constantly changing. As you make changes in your life (like getting a new job, buying a new car, or taking on more credit), your score and report will change as well. That’s why it’s essential to monitor your credit score and report, even if you’re already in a good place.

If you’re planning to apply for a loan, make sure to check your VantageScore. Doing so will give you a good idea of whether or not you’ll qualify for a loan and if the terms will be favorable. If you have a low credit score, it is worth investing time to improve it so that you’ll be able to qualify for better terms.

Are you interested in investing in real estate? You might want to know the credit score requirements.