Credit Score

The Ultimate Guide to the New VantageScore

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VantageScore guideWhen looking for your credit scores, you may have seen VantageScore and wondered what it is, and if it’s different from other scores. Actually, there are some key differences in the VantageScore, and it’s helpful to you, the consumer, to know what they are, as well as what the score means in general for you. Understanding how credit scores work can help you learn how to manage your credit in order to build or maintain a high score.

First, VantageScore is a credit scoring system that uses credit bureau information from the three major credit bureaus — Equifax, Experian and TransUnion — to evaluate consumer risk. A VantageScore credit score is a three-digit number between 300 and 850, with higher scores meaning lower risk for lenders, and better credit terms for consumers. With that said, here’s a look at the most frequently asked questions about this score.

Who uses VantageScore?

VantageScore credit scores are accepted by the secondary ratings agencies, Fitch Ratings and Standard & Poor’s, and are used by:

  • 7 of the top 10 financial institutions
  • 6 of the top 10 credit card issuers
  • 4 of the top 10 auto lenders
  • 4 of the top 5 mortgage lenders

Who created VantageScore?

First introduced in 2006, the VantageScore formula was developed jointly by the three major credit bureaus — Equifax, Experian and TransUnion — using a combined set of credit data obtained from each agency.

How are VantageScore credit scores calculated?

VantageScore calculations include trade lines (credit accounts), collections, public records and credit inquiries from your credit report, with an emphasis on your past two years of credit history. The formula excludes race, color, religion, nationality, sex, marital status, age, income, occupation, employer and where you live. The scoring factors most influencing VantageScore credit scores are:

  • Payment History (40%)
  • Depth of Credit (21%)
  • Utilization (20%)
  • Balances (11%)
  • Recent Credit (5%)
  • Available Credit (3%)

What is the score range for VantageScore?

Prior to the recent release of VantageScore 3.0, the score range was 501-990. VantageScore now uses a range of 300-850, making its scores more consistent with most other credit scores used by lenders. You can see your VantageScore 3.0, along with an Experian credit score and an easy-to-understand breakdown of the information in your credit report – all for free – using Credit.com’s Credit Report Card.

What features distinguish VantageScore from other credit scores?

Some of the most notable features of VantageScore credit scores include:

  • All paid collections are excluded from VantageScore calculations.
  • Compared with other scoring models, VantageScore credit scores require less credit history to calculate a score, which could result in up to 30 million more consumers receiving credit scores — and greater access to “mainstream” credit.
  • For lenders, VantageScore 3.0 delivers up to 25% improved predictive value over the prior version.
  • With VantageScore, natural disaster victims are protected from the negative credit ratings that often result from the economic impacts of these events.
  • VantageScore has simplified their reason codes and made them easier to understand by establishing the website ReasonCode.org.

Are my VantageScore credit scores the same at each credit bureau?

A single scoring formula is used by all three credit bureaus when calculating your VantageScore credit score, yet your credit report is likely to be different at each bureau, resulting in different VantageScore credit scores obtained from Equifax, Experian and TransUnion.

Why should I know my VantageScore?

By checking both your credit report and VantageScore credit scores from each of the three major credit bureaus on a regular basis, you’ll ensure the accuracy of your credit report, while getting a better understanding of your credit risk as seen through the eyes of lenders.

What is a “good” VantageScore credit score to achieve?

There is no single set of “good” or “bad” VantageScore credit scores, as each lender establishes its own unique set of score “cutoffs” based on the amount of acceptable risk for the different credit products they offer. For example, Lender A may require at least a 760 score for the lowest interest rate on a 30-year fixed rate mortgage, but only a 720 score for its lowest auto loan rate. Lender B, on the other hand, may offer the best mortgage rates to consumers having a 740 credit score, and the best auto loan rates to borrowers with a 700 score or above.

How can I achieve as high a VantageScore credit score as possible?

You can begin to raise a low score or maintain an already-high credit score by:

  • Making all payments on time every month
  • Keeping credit card balances low
  • Only applying for new credit when you need it

Image: iStockphoto

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