Credit scores have a major impact on our financial lives. Lenders and other organizations rely on these numerical “grades” to make objective and accurate business decisions. Good scores enable you to borrow money easily and with attractive interest rates, while poor scores result in high-interest loans and lines of credit – or being denied the opportunity to borrow altogether. Creating and maintaining a positive score, therefore, is the best way to finance your goals at the lowest possible cost.
Though the most familiar credit-scoring model is the FICO score (developed by the Fair Isaac Corporation), there is another credit-scoring model to know about: the VantageScore. It was created by a company called VantageScore Solutions, jointly developed by the three major credit bureaus, and is promoted as a very simple and easy-to-understand type of scoring method. This company’s scoring model strives to help lenders predict risk with the greatest degree of accuracy while being favorable to consumers with short credit histories.
A simple, single formula
VantageScores use just one formula to evaluate risk instead of the three slightly different models that the three major credit bureaus – TransUnion, Equifax, and Experian – originally developed with Fair Isaac. Because the mathematical model is the same from bureau to bureau, you will only see a difference in your score if the information on your reports varies.
The scoring system
VantageScores have both numerical scores and letter grades. Traditionally, VantageScores ranged from 501 to 990. However, more recently the range has been changed to the 300 to 850 standard used by FICO. Higher scores indicate low risk and lower scores indicate higher risk.
How VantageScores are determined
VantageScores only use the information on a credit report to come up with a score. The factors contributing to a VantageScore are:
- 32% payment history – how consistently you’ve paid your accounts in a timely manner.
- 23% utilization of available credit – the amount of total credit available that you are currently using.
- 15% credit balances – your total debt.
- 13% length and depth of credit history – how far your credit history goes back, and if you have a variety of credit types.
- 10% recently opened credit accounts – the number of credit inquiries and recently opened credit accounts.
- 7% available credit – the total amount of credit to which you have access.
How to improve your VantageScore
A long and consistent history of responsible credit usage will improve all types of credit scores, including the VantageScore. You can increase your score by:
- Always making timely payments.
- Having no or low consumer debt.
- Repaying any collection accounts that you may have.
- Limiting open credit card accounts to between two and four.
- Keeping older accounts active.
- Keeping revolving credit balances (credit cards) to no more than 60 percent of the account limit.
- Limiting credit applications, and only applying when it truly makes sense to your overall finances.
- Making sure your credit report is accurate. Because the score comes from the information found on your credit reports, make sure there are no negative errors.
Who uses VantageScores
There are a number of companies that offer a variety of credit scoring models, and financial institutions and other businesses may use any of them. All credit scores are products of the company that developed them, and anyone who accesses the scores must pay to view them.
If a lender believes that a particular scoring model will produce the most accurate risk assessment, that is the one that they will likely use – which may be the VantageScore or it may not. Which score is used is up to the business, not the consumer.
How to access your VantageScore
To obtain your VantageScore, contact the three credit reporting companies. TransUnion, Equifax, and Experian all provide them for a fee to both consumers and businesses.
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