The Beginner’s Guide to VantageScore Credit Scores

The Beginner’s Guide to VantageScore Credit Scores | Woman Checklist | The Loaded Pig

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VantageScore is the second most commonly used consumer credit scoring model, only behind FICO. Consumers with new credit can actually benefit from VantageScore as they may not qualify for FICO credit scores. Although VantageScore credit scores are not used by lenders as much as FICO scores, they are used widely in some consumer credit categories, like credit cards. So it’s important to understand the factors that are used to calculate these credit scores. Find out more about VantageScore credit scores and how you can check yours for free. 

What Are Credit Scores?

Credit scores are used by financial institutions (lenders, banks, etc.) as well as non-financial organizations (utility companies, landlords, etc.) to determine a consumer’s creditworthiness. These organizations want to know how likely you are to default on a line of credit or other financial obligation before they approve you. The most widely used companies that provide credit scores for these purposes are FICO and VantageScore.

What Is VantageScore?

The 3 major US credit bureaus, Equifax, Experian and TransUnion, started VantageScore in 2006 because “there was a need for a highly consistent, more predictive scoring model that is easy to understand and apply.” Basically it was created to compete with FICO, which was established in 1989 and is the leading company that provides credit scores to lenders. 

VantageScore provides credit scores to millions of consumers who don’t qualify for a FICO credit score due to little credit history or infrequent credit use. If you have at least one credit account on a credit report then you qualify to have a VantageScore credit score, even if that account is less than 6 months old. 

How Are VantageScore Credit Scores Calculated?

There are many factors that impact your VantageScore credit scores (and they use proprietary algorithms), but here’s a general outline from their website:

  1. Payment History – extremely influential
  2. Length of Credit History and Types of Credit – highly influential
  3. Credit Utilization – highly influential
  4. Total Balances and Debt – moderately influential
  5. Recent Credit Behavior and Inquiries – less influential
  6. Available Credit – least influential

The 2 most recent credit scoring models are VantageScore 3.0 and VantageScore 4.0. Both of these scoring models range from 300-850, like FICO credit scores. 

VantageScore Credit Scores Range | The Loaded Pig

VantageScore has many credit scoring models, as does FICO. This means you don’t have just one credit score from each company, you actually have many. It depends on which credit scoring model is used by each creditor. There are also custom credit scores used by specific industries to better predict consumer behavior. It’s worth noting that monitoring your credit scores, which is free to do, does provide a good picture of how lenders see you, just not the exact same picture.

How Many Creditors Use VantageScore Credit Scores?

Many creditors use VantageScore credit scores, but not all of them. According to FICO, FICO credit scores are used by 90% of top lenders. It really depends on the type of credit account you’re applying for. For example, the majority of mortgage lenders use FICO credit scores.  

Although lenders more commonly use credit scores from FICO than from VantageScore, that does not mean that the scores are not widely used in some consumer credit categories. In fact, according to VantageScore there are over 2,500 users of their credit scores, including both financial and non-financial institutions. These are the organizations that pay to get consumers’ credit scores.

A 2018 market study report by Oliver Wyman, a global leader in management consulting, found that “8 of the 10 largest banks and 32 of the 100 largest credit unions used VantageScore credit scores in one or more lines of business.” The majority of financial institutions that use VantageScore credit scores were credit card issuers, however VantageScore credit scores were found to be commonly used across every consumer finance category except mortgage loans. 

Helpful Tip: If you are looking for a new line of credit, such as a credit card, auto loan or mortgage, ask the lender which credit scoring model they use before you apply so you can check it in advance. 

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Comparing My Credit Scores From VantageScore & FICO 

Because VantageScore and FICO calculate credit scores differently and have several credit scoring models, you have many credit scores floating around. There are some sites that claim you can use a formula to convert one score into another but that’s rather inaccurate. Also, you can get your credit scores from both VantageScore and FICO for free so there’s no need to guess – more on how to get your scores for free later. 

To get a better picture of my various credit scores, I got my credit scores for free from Experian, a bank (Wells Fargo) and Credit Karma so that I could compare the current numbers. I was surprised to find that there was a range from the highest score to the lowest score of 50 points! 

Here are a few more interesting takeaways: 

  • FICO 8 score from Experian was 2.2% higher than the average score
  • FICO 9 score from Wells Fargo was 3.5% higher than the average score
  • VantageScore 3.0 using TransUnion report from Credit Karma was 3% lower than the average score
  • VantageScore 3.0 using Equifax report from Credit Karma was 2.6% lower than the average

What does that really mean? There are differences in how the scores are calculated and the credit reports used that lead to the variety of scores. 

To be clear, this is just a reflection of my personal credit scores and should not be used to make broad estimations. Also the FICO scores, although they used different models, were both using Experian’s credit report. The VantageScore 3.0 scores, both pulled from Credit Karma, used credit reports from TransUnion and Equifax.

How To Get Your VantageScore Credit Scores 

You can get your VantageScore credit scores from Credit Karma for free. Credit Karma also provides insights into your credit scores and how you can improve them as well as credit monitoring so you will receive alerts when there is a change to your credit reports. They also provide personalized recommendations for credit cards and loans depending on your credit score.

How To Get Your FICO Credit Scores

You can get your FICO credit score for free from Experian. It offers access to your Experian credit report and includes credit monitoring and alerts. Experian Boost also enables you to improve your credit score by adding payments that are left out of your credit history, like cell phone, utility bills and even Netflix, to your Experian credit report. The best part is that it’s free.

If you’re interested in learning more about the differences between credit scores from FICO and VantageScore, check out our article FICO vs VantageScore: What You Need To Know About Credit Scores.

Financial freedom begins with good habits.

Rebecca & Tiago, theloadedpig.com