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What Is a VantageScore? Why Lenders Use It?

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Credit scores have a stronghold in getting your auto loan approved. The better the credit score. the better the options. Your FICO score is one common variable your lenders use to measure your creditworthiness. Some also use VantageScore. But what is VanatageScore? How different is it from FICO? Read to know more.

What is a VantageScore? 

VantageScore rates the credit of individuals and gives them a score between 300 and 850. It is an acceptable alternative to the Fair Isaac Corporation’s FICO score, which many people use. Equifax, TransUnion, and Experian collaboratively made VantageScore, the same three companies FICO uses to make its numbers. It uses machine learning to calculate credit scores. 

Your credit reports are looked into while calculating your VantageScore, just like any other credit number. The three main consumer credit companies get information about you from your creditors. For example, they find out if you pay your bills on time. But the information at each credit reporting company may vary because not all banking institutions send information to all three. Also, the VantageScore formula has four different versions, and different credit score providers may use different forms. 

Lastly, when your credit score is made, the score will rest a lot on what is on your credit report. For instance, if you just paid off a lot of debt, it might not appear on your credit report until the next payment cycle. Only then your most up-to-date account amount will be used to figure out your VantageScore or any other credit scoring model. 

How the VantageScore is calculated?

Credit scores from VantageScore are based on information from the three big credit bureaus. The scoring system also uses modeling techniques, such as trended credit data, machine learning, and the National Consumer Assistance Plan (NCAP) optimization. In general, the following are taken into account to figure out VantageScore credit scores: 

Payment history  

How a person has paid their bills in the past is a very important part of how VantageScore works. It is said to make up 40% of a score, which is almost twice as much as the second most important variable. Because of this, it’s important to build and keep a high VantageScore by always making payments on time. 

Age and type of credit  

Even though they are not the most important parts of a VantageScore, an individual’s age and the type of credit, they have are still very important. This variable makes up 21% of a person’s credit score and looks at how long they’ve had good credit accounts. And if they have a good mix of revolving credit and installment loans. That’s exactly why you shouldn’t close old accounts, even if you only use them sometimes. 

Percentage of credit limit used  

An individual’s DTI ratio shows how much of their overall credit limit they have used up. This important variable accounts for 20% of an individual’s VantageScore. Keep your balances on current credit accounts below 30% of your total credit limits to get the most out of this variable. 

Total balances 

11% of an individual’s VantageScore is based on their total outstanding balances, which are considered fairly important. You should pay off as much of your credit as you can to get the most out of your total balances. 

Recent credit behavior  

Recent credit applications have less of an effect than most other factors, but they still make up 5% of a VantageScore. When you apply for new loans or credit cards, your score can go down because of the hard credit checks that come along with it. To avoid it, don’t apply for new credit, especially if you plan to apply for a home or car loan soon.  

Available credit 

Lastly, the amount of credit an individual has access to is also less important to their VantageScore. Even so, this number is still 3% of the whole calculation. If you don’t have any high balances on your credit report, you could ask for your credit limit to be raised on your current cards or get a secured credit card. 

Vantage score range  

The range of VantageScores is from 300 to 850, similar to FICO. If your score is closer to 850, that means you have better credit. The VantageScore models 1.0 and 2.0 gave people grades from A to F based on a range from 501 to 900. But the most current VantageScore 3.0 and 4.0 scores are between 300 and 850, which is the same range as most FICO score models.  

How to get a VantageScore 

Personal financial websites offer free VantageScores. VantageScore also keeps a list of free credit score providers and information on which credit bureau’s score is available and how frequently it is updated. 

VantageScore model and components 

FICO scores and VantageScore use information from consumer credit files the three national credit bureaus keep. The algorithms then use statistical analysis to predict the possibility of a consumer defaulting on a loan. Both the VantageScore and FICO models use three-digit scores to reflect the risk of loan default, with higher scores representing a lesser risk. 

Anyone with a VantageScore of 600 or lower has bad or very poor credit. A credit score of 601 to 660 is considered normal or fair. A credit score range of 661 to 780 is regarded as good, while anything beyond 780 is considered exceptional. A VantageScore’s components are weighted as follows:  

  • Total credit usage, balance, and available credit  
  • Credit mix and history 
  • Payment history 
  • New accounts opened  
  • Credit age 

What is VantageScore 3.0? 

VantageScore 3.0 is the third iteration of the FICO-alternative credit score model.  It all began in 2006, when the three major consumer credit reporting agencies collaborated to develop the first VantageScore credit scoring model. 

Before VantageScore 3.0 appeared in 2013, it went through multiple versions. According to VantageScore, the new strategy has been so successful that about 40 million Americans who previously did not have a credit score can now obtain one.  

VantageScore 4.0, the fourth and most recent iteration of the VantageScore methodology, emerged in 2017, but many lenders continue to depend on VantageScore 3.0. 

What is VantageScore 4.0? 

The most recent version of the company’s scoring model is VantageScore 4.0. It was released in 2017. However, it is not as popular as the VantageScore 3.0 model. 

 The 4.0 model contains trended data, which examines your credit consumption across time rather than at a single point in time. It also treats medical debt more leniently in collections than the 3.0 version, and the company claims it employs machine learning to rate clients with little recent credit usage. 

VantageScore vs. FICO credit score

While VantageScore and FICO scores attempt to forecast the same thing, their credit scoring methodologies differ. Here are some of the significant differences between these two companies: 

Tri-bureau vs. Bureau-specific models 

VantageScore generates a single tri-bureau model that may be utilized with Experian, Equifax, or TransUnion credit reports. FICO develops scoring models for certain bureaus. So, while the most recent FICO score 9 has a single name, there are three somewhat distinct FICO score 9 models—one for each of the main credit reporting agencies. 

Minimum scoring standards 

For FICO to generate a credit score based on one of your credit reports, you must have a credit account (or “tradeline”) that is at least six months old, as well as activity on a tradeline during the past six months (they do not have to be the same tradelines). If you have at least one account on your credit report, even if it is more recent than six months, VantageScore may consider you scoreable. Furthermore, neither credit scoring organization will score a credit report if the consumer is deceased. 

The score ranges 

With all of these credit scoring methods, a higher score suggests that you make timely payments which is why creditors are prepared to provide the best rates and terms to persons with high scores. FICO ratings vary from 300 to 850, with industry-specific ratings ranging from 250 to 900. 

The VantageScore’s initial two versions varied from 501 to 990, while the newest VantageScore 3.0 and 4.0 use the same 300 to 850 range as FICO base scores. A good credit score varies by creditor. However, on a scale of 300 to 850, a credit score of 670, in the case of FICO, and 700, in the case of VantageScore, is considered good. 

How to improve your VantageScore 

As a borrower, there are several things you may do to enhance your credit score. You can, however, modify these efforts to specifically boost your VantageScore. Consider the following suggestions to improve your VantageScore: 

  • You must pay all of your bills on time. 
  • If you suspect your payment will be late, contact your lender. 
  • Maintain a credit usage rate of less than 30%. 
  • Create a varied credit portfolio that includes revolving credit accounts and installment loans. 
  • Keep previous accounts open and limit your loan and credit card applications. 
  • Open a secured credit card to demonstrate your ability to make on-time payments. 
  • Maintain healthy credit practices over time by being patient. 

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Bottom line 

Credit scores and the models used to calculate them are important aspects of obtaining a loan. You’ll be better educated as you attempt to improve your credit score by learning what VantageScore is and how it works. 

FAQs

What is VantageScore used for? 

Your creditworthiness is assessed by lenders, landlords, and financial institutions with the help of your VantageScore. 

Is VantageScore accurate? 

VantageScore is considered to be an accurate and reliable indicator of your credit health. 

Do banks use VantageScore? 

VantageScore 3.0 is available to customers of Capital One, Chase, and US Bank when they login to their accounts. 

Can I check my VantageScore? 

Yes, you can check your VantageScore for free.  

What is a good score for VantageScore? 

A VantageScore of 750 to 850 is regarded as “exceptional” or super prime, while a score of 700 to 749 is good. Scores between 650 and 699 are considered fair, scores between 550 and 649 are considered bad, and scores between 300 and 549 are considered very poor. 


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