What Is VantageScore and How Is It Calculated?

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  • VantageScore is a credit scoring model developed by the three major credit bureaus: Experian, Equifax and TransUnion.
  • VantageScore 4.0 takes into account your monthly revolving credit balances for the past 24 months.
  • The FHFA approved VantageScore 4.0 and FICO 10T for use by Fannie Mae and Freddie Mac in October 2022.

When someone talks about their credit score, they’re usually referring to their FICO score, the oldest and most widely used scoring model. However, VantageScore is winning year over year on FICO.

The second-ranked credit scoring model, VantageScore had a user base of 2,500 lenders who obtained 12.3 billion VantageScore credit scores from July 2018 to June 2019. From March 2021 to February 2022, VantageScore had a user base of over 3,000 lenders from 5 billion credit scores14. .

The vast majority of lenders still rely on FICO scores when making loan decisions, but VantageScore is becoming more relevant. Here’s everything you need to know about VantageScore and how it works.

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What is VantageScore?

VantageScore is a credit scoring model that was designed by the three major credit reporting agencies: Equifax, TransUnion, and Experian.

Like other credit scoring models, VantageScore is designed to measure a consumer’s creditworthiness. The higher your credit score, the more likely you are to pay off your outstanding debts. This means less risk for lenders, leading them to lower interest rates.

Comparisons are often made between GPA and credit scores. The first version of VantageScore, which came out in 2006, actually assigned consumers a letter grade of A through F, which corresponded to a credit score of 501-900. This was the first of four generations of VantageScore to come out.

VantageScore 2.0 came out four years later as a result of the housing bubble bursting in the late 2000s and then the recession. Fluctuating finances have given VantageScore the opportunity to update its look at financial profiles. It came with the same rating system as VantageScore 1.0.

If a lender is using VantageScore now, they are most likely using VantageScore 3.0, which was released in 2014. This iteration differed from previous generations in that it did away with the letter grade system in favor of a five-tier system similar to FICO He also adjusted his score range to 300-850, just like FICO.

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The intervals are described as follows:

Credit bureaus released VantageScore 4.0 in 2017, although the credit world has not yet widely adopted this generation. More on VantageScore 4.0 later.

VantageScore vs. FICO

Because VantageScore was created as a competitor to FICO, they operate similarly. Both scoring models work on a scale of 300 to 850, although, as discussed above, this has not always been the case.

“Think Pepsi and Coke,” says John Ulzheimer, a credit expert and former employee of FICO and Equifax. “It’s that simple.”

However, your VantageScore will likely differ from your FICO score. This is because VantageScore weights information about your credit score differently. Here’s the full breakdown:

While FICO and VantageScore weigh payment history equally, it’s worth noting that FICO weights new credit, which considers recent hard inquiries, twice as much as VantageScore.

Calculations aside, it’s worth mentioning that FICO remains by far the dominant credit scoring model. FICO claims that 90% of lenders use FICO scores when deciding to lend money to a borrower. Ulzheimer says just because FICO leads VantageScore usage, that doesn’t mean VantageScore is irrelevant.

“Being in second place in credit scoring, space is still a good place to be, given the sheer volume of credit scores that are used each year,” says Ulzheimer.

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VantageScore 4.0

VantageScore 4.0 is the latest generation of the credit scoring model. Unlike previous models, the 4.0 takes “trend data” into account. Trend Credit Data analyzes your revolving credit line balances (credit card balances) for the past 24 months to predict future performance. “That data is hugely predictive of risk,” says Ulzheimer.

With an additional metric to track, the new VantageScore 4.0 calculation distribution changes slightly. Here’s the full broadcast:

In October 2022, the Federal Housing Finance Administration (FHFA) approved VantageScore 4.0 and FICO 10T for use by Freddie Mac and Fannie Mae. This means that when these credit scoring models are implemented in a few years, lenders will be required to provide FICO 10T and VantageScore 4.0 to businesses.

How to check your VantageScore

Most financial institutions, such as credit card companies or banks, will provide you with your FICO score. However, because VantageScore is not as popular or widely used, your score may not be immediately accessible to you.

However, there are still many ways to access your VantageScore for free
VantageScore Website Listings. For example, Credit Karma provides your VantageScore 3.0 from TransUnion and Equifax. Several places like American Express, CreditWise and Credit Sesame also offer VantageScores.

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